Financial Responsibility with a Prepaid Credit Card
A prepaid credit card can be a way to learn financial responsibility for people with credit problems or who have difficulty managing their money. Using prepaid cards along with debt counseling can help people learn to use their money without overspending on unnecessary items.
Prepaid credit cards are one of the most popular credit cards available. A survey conducted by the Federal Reserve Bank of Boston in 2009 discovered that nearly 1 out of every 3 Americans has at least one prepaid card of any kind.
The reasons for prepaid credit cards increasing in popularity include:
- Accepted around the world
- Accepted by nearly all retailers
- More durable than paper money
- Re-loadable
- Safe for people without bank accounts
- Same brand as traditional credit cards
- Set spending amount
Like traditional credit cards, prepaid cards are accepted by all of the same retailers. Prepaid cards can even be used internationally. This makes them perfect for the traveler who could lose their traditional credit card while abroad and be at risk of identity theft.
Unlike paper money, a plastic card is protected against rips and tears. They can survive water immersion without the colors bleeding off and making a mess. It’s also easier to carry one card compared to an entire billfold full of cash.
Prepaid cards are generally reloadable. This means that the user can add more money to the card’s account without having to purchase a new card or throw it away. Users simply need to log onto a secure website or contact the issuer to load more money onto the card. The entire process can be completed in only a few minutes.
For people without a bank account, a prepaid card is considerably safer than some of the other options. People lacking bank accounts might be forced to use a check cashing business or a pawn shop, both of which can charge exorbitant interest rates.
Traditional credit card issuers also offer prepaid cards. This can give privacy-conscious people a way to spend their money without being stigmatized. Prepaid cards look exactly the same as any other credit card and can be an easy way for parents to start teaching their children or teenagers about using a credit card responsibly.
Because people must load a specific amount of money onto a prepaid card, they can control exactly how much to spend. This helps to limit or prevent impulse buying. Users may find it easier to control their budget with a prepaid card compared to a traditional credit card.
As with any other kind of credit card, some prepaid cards are better than others. Like nearly all credit cards, prepaid cards may charge certain kinds of fees for specific uses. For example, using a prepaid card at an ATM may add a $1 fee to the transaction. Some common fees for prepaid cards can include:
- Activation fee
- ATM fee
- Disuse fee
- Monthly fee
- Reloading fee
- Year end fee
Shop around to find the card with the lowest fees. Many merchants or retailers that offer a branded traditional credit card also have a prepaid card option available. Each prepaid card may have different fees or payment options. A little research can go a long way before signing up for a prepaid card.
Although using a prepaid credit card will not solve every money problem, it can be a step on the path to financial responsibility. Small steps like switching from a traditional credit card to a prepaid version can provide a long-term benefit. People who need to improve their financial habits should consider using a credit card that comes prepaid and enjoy the advantages.