Prepaid debit cards can be a great alternative for people who can’t get a credit card or a debit card associated with a checking account. During and after debt settlement, a prepaid debit card may be the only way you can have access to a Visa- or MasterCard-branded card. Check out some of the pros and cons of prepaid debit cards.
Pros of a Prepaid Debt Card
You don’t need good credit to qualify. When you’re right out of debt settlement, your credit score typically won’t be in a state that you can qualify for a credit card. But, you probably still need access to a credit-like card since transactions are increasingly becoming electronic. Prepaid debit cards don’t usually require a credit check, so you can qualify even with bad credit.
Get one even if you’re in ChexSystems. If you’ve had trouble with a checking account, like outstanding overdrafts, you may have a record in ChexSystems that keeps you from getting a checking account and check card. Prepaid cards don’t usually run a check through ChexSystems so a bad checking account history would not affect you.
You can’t overdraft your account. With a prepaid card, you can only spend as much money as you have in your account. That keeps you from dealing with overdrafts and non-sufficient funds fees. Any transaction that exceeds your account balance would be turned down.
You’re spending your own money. When you use a credit card, you’re spending against a credit limit and you have to repay what you’ve spent, sometimes with interest. A prepaid debit card gives you access to money that you’ve loaded onto your card. Once you’ve made a purchase, you don’t have to pay it back. There are no monthly payment amounts or due dates to remember.
The Downside of Prepaid Debit Cards
You may not be able to write checks. Only a select few prepaid debit cards let you write checks against your balance. If your prepaid card doesn’t have this option, you’ll have a difficult time using your account to pay any bill that doesn’t take a debit card. For example, if you typically write a check to pay your rent, you might have to purchase a money order to pay the rent.
It won’t rebuild your credit. Since your prepaid card isn’t a loan that you repay, it doesn’t go on your credit report. Your prepaid card usage won’t help your credit score no matter how responsible you may be. The only exception is if you use your prepaid card to make timely payments on an account that is listed on your credit report.
Fees may be higher than credit cards and debit cards. Prepaid cards often come with monthly fees or annual fees that might exceed the types of fees charged on credit cards and debit cards. Some prepaid debit cards have fees for various types of transactions – loading money onto your card, getting an account statement, talking to a customer service representative or checking your balance. Make sure you read through the agreement for the card so you know what you’ll be charged and when. Look for a card that keeps all these various fees to a minimum.
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