4 Reasons to Consider a Prepaid Card

You might the prepaid cards are for people with bad credit who can’t access traditional credit cards or those who can't get a checking account. However, a 2014 survey conducted by The Pew Charitable Trusts revealed that 59% of prepaid card users actually have a checking account and 66% have used a credit card within the past year. So, there are some benefits to prepaid cards, even for people who use traditional banking.

Prepaid cards work almost just like debit cards, except that you don’t have to open a checking account. You load funds onto the card and can swipe for purchases until you've used all the money you loaded onto the card. Here are a few ways a prepaid card can benefit you.

Avoid overdraft fees. Some who use prepaid cards choose to do so because they want to avoid bank overdraft fees which are charged when you overspend your checking account balance. Prepaid cards won’t allow transactions that exceed the available balance on the card and thus, do not charge overdraft fees. (You can avoid overdraft fees with a checking account by calling your bank and opting-out of having overdraft transactions processed.)

Avoid credit card debt. Because you can only spend what you’ve loaded onto your prepaid card, there’s no risk of going into debt. People who’ve struggled with credit card debt in the past may choose prepaid cards so they can make electronic payments without having to repay what they’ve borrowed.

To control your spending. Breaking a habit of overspending is easier said than done. A prepaid card won’t completely cure a spending problem, but since you can’t overdraft or go into debt, you’ll only be able to spend what you have available on the card. Some people use prepaid cards to control spending in specific areas by loading funds for a specific budget category onto a prepaid card. For example, you could load your monthly grocery budget onto a prepaid card to keep from overspending at the grocery store.

Pay your child’s allowance or send money to a college student. Prepaid cards can be a good way to give money to your kids who may not be ready for the pressures of a checking account or credit card. If you have a child away at college, you can load a monthly allowance onto a prepaid card, usually by transferring directly from your checking account. The fees are minimal and sometimes even free depending on the card you choose.

Prepaid cards come with nearly all the benefits of checking accounts, including direct deposit, mobile check deposit, online shopping, and online bill pay. In some cases, consumers have chosen to bypass banks completely and only use a prepaid card. If you can minimize the fees, a prepaid card may be even better than a checking account.