Prepaid debit cards have been on the rise for the past years. It started off with a rocky history, with prepaid debit cards with high fees that were endorsed by celebrities and little support or merchants accepting them at the beginning. However, prepaid debit cards have benefits that makes them an ideal choice and is also the reason why it is gaining in popularity. Here are some statistics:
- in 2003 less than $1 billion were loaded onto cards (source: cbsnews)
- in 2008 $19.5 billion was loaded onto prepaid cards (source: cnbc)
- in 2009 $28.6 billion was loaded onto prepaid cards (source: Forbes)
- in 2014 $98.6 billion nearly $100 billion was loaded onto prepaid cards (source: cbsnews, cnbc, Forbes)
As you can see, the usage of prepaid debit cards are rising and will grow to higher numbers with projections of $337.8 billion by 2017 (source: ibtimes).
Millenials are one group that uses prepaid debit cards and many younger consumers have lacking credit history and credit score to be able to have a credit card. While others (like us from Trader Skillz) just enjoy using these interesting and beneficial cards and we will tell you later how we use it.
Now here are the 8 reasons you should be using prepaid debit cards:
1. Control your spending. A tool for the frugal, spend only what is in your card and nothing more. You can overdraft your checking account, but with prepaid debit cards you spend only what is in it. With this in mind you would usually make sure that you control your spending and keep watch on your balance.
2. No high overdraft fees to worry about. Saving money by not paying high overdraft fees is good. Even with a $1 overdraft the fees for overdraft fee can easily reach $45. With your prepaid debit card overdraft fees and accumulation thereof is non-existent.
3. No credit checks problem. No matter if you have good or bad credit, your credit score will not matter. It is your money you will be spending not the debit card companies money which means you will not owe them anything. However, debit card companies do charge fees at the beginning that is how they make their money.*
*Debit card companies charge for the purchase and or when you reload your card. Other conditions may apply like monthly or yearly fees which you will need to ask from your debit card company.
4. Unaffected credit score. As mentioned, it is your own money and you will not go into credit or borrowing money. You may want to take note of this especially if you need to take a loan and you don’t want to get a bad credit score that may affect the loan processing when you use a credit card.
- A large purchase on a prepaid debit card won’t show up on your credit report and has no effect on your credit score.
- Using a credit card for a large purchase, like an appliance, could result in the rejection of a loan application.
5. A little bit more privacy. It's possible to purchase a prepaid debit card up to $250 and use it without identifying yourself. However, you'll have to provide your identity when you reload the card.
6. Works with ATMs. When a store doesn’t accept credit card or you just need to pay something in cash then prepaid debit card can easily be used to withdraw in any ATMs (Automated Teller Machines). You may pay a fee but you can get access to the money stored in your card in most ATMs.
*There may or may not be a fee when using your prepaid debit card when withdrawing with certain debit card companies if you withdraw within that debit card companies network (in case of big banks). However, those withdrawal fee conditions will be with the agreement. Some providers also have the first withdrawal in every month free, but succeeding withdrawals within the month will be charged the withdrawal fee. Make sure your learn and read the conditions for your prepaid debit card carefully so that you will know your cards withdrawal fees.
7. Protection for your prepaid debit card will be similar to credit card holders. Prepaid debit cards receive the same protections as a credit card on the same branded network. Therefore, your Visa prepaid debit card is just as safe as regular Visa credit card. 8. Option of direct deposit. You can deposit a portion of your paycheck directly into your prepaid debit card. Which in return you can use to pay for all of your monthly expenses (eg. groceries, gas, clothing, movie tickets, etc.). With this option your money will be available to you monthly with no extra work on your part, since it is also your own money you will be spending (equivalent to actual cash) you will also be careful in how you will spend it.
Of course the disadvantage of these cards are the fees. You would really need to shop around since debit card providers have different terms and fees. Some are expensive but many more are convenient and reasonable in their fee structure.
As you can see from the 8 reasons why you should be using prepaid debit cards there are advantages but this does not mean it is for everyone. You should decide for yourself if at your given circumstance it is a good choice for you This may be for you if you have bad credit score or are concerned your credit score will get bad, or maybe you want to control your spending. In those cases, prepaid debit cards are very good alternatives.
As promised earlier we will tell you how we use it. We do have our checking account with its own debit card, but for online purchases and daily expenses we have two separate prepaid debit cards. One is connected to Paypal and is also used for daily expenses. The other is only loaded for online purchases were only credit/debit cards are accepted otherwise we usually pay via Paypal. The reason why we use one debit card for credit card purchases is to make sure we don’t get billed more than what we accept as well as card protection since we will only load that prepaid debit card minimally. The other one may be connected to Paypal but we have not used it to load it anymore and is there as backup for Paypal funding (which we do not need, you may guess why at the comments section) so mostly it is used for daily expenses like food and bills.
By the way, Paypal has its own prepaid debit card (https://www.paypal-prepaid.com/#). So if you are wondering if prepaid debit card is accepted by Paypal, well there is your answer. However, keep note that Paypal will deduct money from your card and you will need to be able to see that on your mailed statement or online. Paypal will give that money back as a first Paypal deposit, they do this for verification purposes that you are indeed the cardholder of your card.
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