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Considerations when using a prepaid card

If you want to have the convenience of a credit card, but you can’t qualify for a regular credit card, one option is a prepaid card, sometimes known as a prepaid debit card or a stored value card. The concept is the same. It looks like a credit card, and you can use it up to some limit. Like an ATM card, you can use up to a specific amount. Depending on your bank, you may also have the ability to go over the limit on an ATM card, and maybe pay some overdraft fees. However, with a prepaid card, once you reach the limit, you can’t spend any more.

You can can get a prepaid card that looks just like a credit card, including having a Visa or MasterCard logo. They may look like credit cards, but there are a few things about them that are different, and that my make them attractive or unattractive depending on your situation.

Key things to know about prepaid cards

Whether you will want to use a prepaid card will depend on your situation. Before you use one, here are a few things to consider:

  • No bills to deal with later since you are using money you already have.
  • You don’t need a bank account to get one.
  • Your credit history doesn’t matter, you just need to have cash.
  • There is usually a fee to activate the card or to add money to it.
  • You can use it instead of cash.
  • If it is lost or stolen, it likely can’t be canceled.
  • They are accepted at most places that accept credit cards.
  • You have to keep track of how much is left on the card.

One ideal use of this kind of financial instrument is as a reloadable credit card for students, especially if the student doesn’t have experience dealing with credit cards or ATM cards, or maybe has done so in the past but has shown poor decision making.

For this kind of student, especially someone like a college freshman who is spending time away from home for the first time, a prepaid card can give a young person the convenience of a credit card with responsibility of keeping track of finances, while limiting the financial damage if they exercise poor judgment and self control.