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Best Prepaid Debit Cards

Some people prefer paying for items with cash, whereas others prefer using a credit or bank debit card. But these aren’t the only three options available. You also have the option of using a prepaid debit card.

These debit cards are offered by many banks and often include a MasterCard, Visa or American Express logo. Prepaid debit cards have been around for a while, yet there still remains some confusion surrounding these cards. If you’re thinking of getting a prepaid debit card, make sure you understand how these cards work, as well as how they differ from a bank debit card, a credit card, and a gift card.

How Prepaid Debit Cards Differ From Other Cards?

Prepaid debit cards allow you to load money onto a card, which can then be used to pay for merchandise purchased in a store or online. These cards are sometimes referred to as reloadable credit cards, and as a result, some people confuse prepaid debit cards with an actual credit card. The two, however, are different. Whereas a credit card issuer gives you a line of credit with a limit, there’s no line of credit with a prepaid debit card. Instead, you can only spend up to the amount you put on the card.

Prepaid debit cards also differ from bank debit cards because they’re not tied to a checking or savings account. When using a bank debit card, each transaction you make with the card deducts funds from your bank account. Also, prepaid debit cards are not the same as retail gift cards. Yes, money is loaded onto both types of cards. The difference is that some gift cards can only be used with certain merchants, whereas a prepaid debit card can be used anywhere.

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Who Should Get a Prepaid Debit Card?

Anyone can get a prepaid debit card, but certain groups of people may particularly benefit from using these cards. You might be a good candidate for a prepaid debit card if…

  • You’re unable to get a credit card. If you can’t qualify for a credit card because of bad credit, no credit history, lack of employment or maybe you’re too young for a credit card, a prepaid debit card is worth consideration. Use the prepaid debit card, in the same manner, you would use a credit card. Buy groceries, fuel your car, purchase clothes and shop online.
  • You want to avoid debt. Then again, maybe you “can” qualify for a credit card, but you don’t want to risk debt. Since a prepaid debit card only lets you spend what you put on the card, there’s no risk of accumulating massive debt.
  • You don’t have a checking account. A prepaid debit card is also beneficial if you don’t have a checking account. Rather than carry around a lot of cash and risk losing the money, load funds onto a prepaid debit card and enjoy peace of mind.

Pros and Cons of Prepaid Debit Cards

But although a prepaid debit card comes in handy in many situations, it’s important that you recognize not only the advantages of these cards but also possible disadvantages so you’re not caught off guard or surprised.

  • No credit check. One advantage of a prepaid debit card is that there are no credit checks. Since these aren’t credit cards, a bank doesn’t need to check your credit report or credit score.
  • Safer than cash. If you carry lots of cash in your wallet or pocket, there’s the risk of losing your cash. And once the cash is gone, you can’t replace it. A prepaid debit card is safer than cash because some cards offer the same protections as a credit card, such as reimbursement of funds if the card is lost or stolen. Of course, you should take measures to keep your prepaid debit card safe and avoid this hassle. For example, keep the card in a wallet or purse and not your back pocket. And when shopping or dining at a restaurant, make sure the waiter or cashier returns your card before walking off. Each night, double check your wallet to make sure the card is in your possession, and if not, report it lost as soon as possible.
  • Use anywhere Visa or MasterCard is accepted. Many prepaid debit cards carry a Visa or MasterCard logo, which means they can be used wherever Visa and MasterCard are accepted. American Express also offers prepaid debit cards. While this is an option, keep in mind that not all retailers accept American Express. If you choose one of this company’s prepaid debit cards, you might be limited in where you can use the card.
  • Easier to budget your money. If you have a problem with overspending, use a prepaid debit card to help manage your money. Determine how much to set aside for groceries, fuel or entertainment each week. Instead of keeping this money in the bank, load it onto your prepaid debit card, and then only use this card for these expenses. This method forces you to only spend the amount allotted for these expenses.
  • Pay your bills online. You can also use a prepaid debit card for online bill payments. Use the card to pay utilities, cell phone bills, etc.
  • Monthly fees. Unfortunately, some prepaid debit cards charge a monthly fee, as well as a small fee to load money onto the card. Fees aren’t outrageous, but they do add up over time. You might pay a $4.95 monthly fee, plus a $0.75 for each reload. Before getting a prepaid debit card, shop around and compare options to minimize your out-of-pocket expense.
  • Doesn’t build a credit history. Another downside is that a prepaid debit card doesn’t build or improve your credit. These cards are excellent for budgeting your money and avoiding debt. But if you want to establish a credit score and qualify for a mortgage or low-rate financing in the future, look into getting a credit card. With a credit card, the issuing bank reports your credit activity to the bureaus each month. To build good credit, pay your bills on time and keep your debt low.
  • Lack of insurance. Some prepaid debit cards don’t offer as many consumer protections as others, and you’ll find that many cards don’t reimburse unauthorized charges in the event the card is lost or stolen. Also, some prepaid debit cards don’t include FDIC insurance. So you’ll lose your funds if the financial institution behind the card goes under, hence the importance of shopping around. As you compare options, specifically look for prepaid debit cards that “do” offer FDIC insurance, as well as consumer protections in case the card is lost or stolen.

Tips for Using and Choosing a Prepaid Debit Card

The more you know and understand about a prepaid debit card, the better your experience while using the card. Here are a few general tips:

  • Register the card. Although registering a prepaid debit card is optional, registering the card allows you to view your card activity, track how much you’re spending and monitor your balance to avoid an embarrassing moment at checkout. Read the information that came with your prepaid debit card. It should include instructions on how to register the card.
  • Don’t lose the card. Keep a close eye on your prepaid debit card the same way you would keep a close eye on cash, especially if you choose a prepaid card that doesn’t offer consumer protections. To avoid losing the card, only bring the card when you plan on making a purchase with it, and don’t lend the card to friends. If your prepaid debit card ever becomes lost or stolen, and the bank issuing the card offers protection, make sure you report the theft or loss immediately. Some banks may only provide reimburse or replace funds when you report the incident in a timely manner.
  • Only shop with reputable websites. To avoid someone getting your prepaid debit card number and stealing your funds, only shop with reputable online retailers and ensure a site is secured before entering your card number. Look for a padlock symbol in the website’s address bar, or check to see if the website’s address begins with “https://.” The “s” at the end means the site is secured.
  • Determine which features are important to you. Prepaid debit cards differ and you’ll find that some cards have more features than others. Before getting a prepaid debit card, consider which features are important to you. Do you want a card featuring a mobile app? Are you looking for a card that lets you reload fund at a local store or online? Do you plan on traveling overseas and need a card with chip technology? Additionally, some prepaid debit cards offer perks similar to a credit card, such as purchase protection, which offers reimbursement if an item you purchase with the card is lost, stolen or damaged within 90 days of the purchase. This feature isn’t offered by every prepaid debit card, so you’ll need to shop around.

Ways to Load Funds on a Prepaid Debit Card

When you think of using a prepaid debit card, you might envision going into a retail store and loading cash onto the card in person. This is an option, but there are other ways to get cash on the card.

  • Direct deposit. If your employer offers direct deposit, request to have your paycheck direct deposited onto your prepaid debit card. Instead of giving your employer a checking or savings account number and a routing number, provide the number to your prepaid debit card.
  • Transfer funds from a bank. If you also have a bank account and want to load funds onto a prepaid debit card, use your prepaid debit card’s mobile app or visit the card’s website and set up a transfer between your bank account and the prepaid debit card.
  • Mobile check deposit. The same way banks offer mobile check deposit, you can also enjoy this feature with some prepaid debit cards. Once you’ve registered the card and you’ve signed up for online account management, simply take a picture of your paycheck (or any check) and instantly deposit funds onto your prepaid debit card.

Option for Building a Credit History

As previously mentioned, a prepaid debit card doesn’t build a credit history. If you enjoy the convenience and flexibility of a prepaid debit card, but you also need to build credit, you should consider applying for a credit card. Of course, this is easier said than done because many banks require a credit history before issuing a credit line.

If you’re having difficulty getting approved for a credit card, ask your bank about a secured credit card. These credit cards are designed specifically for people who have bad credit or no credit history. Secured cards require a security deposit, which is essentially collateral for the credit line. If you give the bank a $500 security deposit, you’ll get a credit card with a credit line of $500.

A secured credit card is not the same thing as a prepaid debit card. Your deposit is placed in an interest-bearing account. You will also receive a monthly credit card statement and you’re required to make a minimum payment each month. Manage this account responsibly and you’ll slowly improve your credit score and qualify for an unsecured credit card. To build your credit score, pay your bills on time and set up automatic payments to avoid a late arrival. Don’t max out the credit card by only charging up to 30% of your credit line. And don’t apply for too many credit cards because excessive inquiries can lower your credit score.

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Some people never consider using a prepaid debit card. But if you’re looking for an easier way to budget your money, or if you don’t want to risk accumulating massive credit card debt, a prepaid debit card is an option worth considering. These cards offer many favorable features, such as a mobile app, a variety of reload options and some cards include consumer protections. But while a prepaid debit card can be safer than cash and convenient, these cards don’t appear on your credit report, so they don’t build a credit history.