Prepaid debit cards may be a good play

Prepaid debit cards are hot right now, with all manner of celebrities attaching their name to what can often be a very questionable financial product. But despite the bad rap that prepaid debit cards have, they do serve a purpose for people who want to stop being debt broke and get out of credit card debt by stopping their wanton charging.

What is a prepaid debit card?

For those not in the know, pre-paid debit cards are purchasing cards that typically use the same Visa, MasterCard, AMEX and other payment networks that credit cards do. The main difference is that instead of granting you a line of credit, the issuer gives you access to funds that you’ve already placed on deposit with them, like you would a checking or savings account at a bank.

You don’t pay interest, but there are many fees that can chip away at the money you’ve deposited. Some don’t hit you up for very much, but most are pretty bad.

Also, unlike credit cards, these account don’t help you build credit since you have no monthly principal and interest bill to pay, and they are not reported to the credit bureaus.

So why consider a prepaid card?

Here are some reasons why you may want to consider signing up for a prepaid card.

  1. You can’t get a regular credit card. This is probably reason number one for most users. If your credit history is too new or too shot to qualify for a “real” credit card, prepaid cards may be your only option. You can still use these cards to make payments where credit cards are most convenient, and prepare for the day when you can get a credit card again. Only this time you’ll be in the habit of only spending what you can afford.
  2. You can’t get a checking account with a debit card. Most banks now offer debit cards attached to their checking account options, allowing you to keep tabs on your expenditures all in one place. Too bad that so many banks now have a minimum credit score standard to open an account, which means that for many Americans, their credit is so bad that banks won’t even take their cash, and most certainly won’t give them a debit card.
  3. You can’t be trusted with a credit card. One of the biggest challenges that bad borrowers face is a lack of self-control. With a pre-paid debit card you can (usually) only spend what you’ve loaded onto the card, and no more. Once you’re tapped out, you can’t keep the good times rolling by asking for a credit limit increase. If you share credit with a less-than-responsible spouse, giving them a prepaid card can help avoid the stress of their bad money management.
  4. You want to make shady purchases and not risk your regular credit card account. If you are a heavy online shopper, are going overseas to a questionable part of the globe or like to shop with merchants who aren’t 100% trustworthy, a prepaid debit card may be right for you. Once again, you can only risk what you’ve loaded onto the card and if the worst happens you won’t be on the hook for thousands of dollars in fraudulent charges.

Find the best prepaid card

The major drawback to prepaid debit cards are the often exorbitant fees charged to get, keep, use and reload the suckers. Luckily, the credit card comparison site NerdWallet has a new tool that can help.

Their handy fee calculator and card directory is just what the doctor ordered to make sure that you save money and get the best card for you. Links on the site let you apply online to some of their best found offerings.

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