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The Basics of Prepaid Debit Cards

Basics of Prepaid Debit Cards & How They Work...Here's how prepaid debit cards work and the pros & cons...


These days, it's nearly impossible to make ends meet without some form of plastic. To buy almost anything online, you need a credit card. You need a credit card to rent a car or make a hotel reservation. But if you're like many Americans, a lack of credit or a poor credit history may prevent you from obtaining a standard credit card. Is a prepaid debit card the right solution?

How they work:

Prepaid debit cards function just like standard credit cards. They're accepted worldwide - anywhere Visa or Mastercard are accepted - but operate on a 'pay-as-you-go' basis. Instead of receiving an line of credit, you must prepay or 'load' the card to make purchases. When you use a prepaid debit card, the money you spend is deducted from your account. When it's depleted, you can't use the card again until you make another deposit or 'reload' the card.

Prepaid debit cards provide an alternative to cash when paying for groceries, restaurant bills, gasoline, online and other purchases. Cardholders choose prepaid debit cards because they cost less than check-cashing and payday loans, and are safer than carrying cash. Plus, they're simple to 'load' (or fund)-- making them extremely convenient and easy-to-use.

The Pros and Cons:

Advantages of prepaid debit cards:

  • safer to carry than carry cash
  • accepted worldwide due to Visa and MasterCard affiliation
  • no monthly bill to pay
  • no interest or loan balance
  • zero liability for unauthorized use of their cards in most cases
  • helps prevent further debt by controlling spending
  • approval for almost anyone over the age of 18 regardless of credit history
  • ability to reload money online, over the phone or at any
    ATM worldwide

Disadvantages include:

  • Limited to the amount of available cash you have to deposit
  • Will not improve your credit score (unless specified)
  • Application fees, monthly service fees and ATM fees.
  • Less protection from lost or stolen cards
  • Does not offer chargeback protections that would allow you to get your money back promptly if there is a dispute with the merchant.

Before you apply:

Before you apply for a prepaid debit card, it's important you understand all the terms and conditions. Read the application thoroughly, especially the sections describing fees. Issuers may charge activation fees, annual fees, monthly maintenance fees and per-transaction fees for some or all transactions. Although you won't avoid fees altogether, make sure you understand what you're paying for so there aren't any surprises.

There are many advantages to using prepaid debit cards-- especially if you have poor / no credit. If a prepaid debit card sounds like the right solution for you, getting one is as simple as applying online. You can find a complete list of prepaid debit cards below:

* See our complete list of  prepaid debit cards >

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