It’s safe to say that any card with Kim Kardashian or Twilight characters on the front would be a little difficult to take seriously. Prepaid debit card issuers have been using celebrity faces to market their misleading and expensive cards because their outrageous fees certainly aren’t doing the trick.
Prepaid debit cards allow you to pre-load money on a card, which you can use anywhere cards are accepted.
Sounds simple enough, but there’s a catch.
If you’ve ever used a prepaid debit card, you know that a $10 purchase could set you back and extra $3-$6 in transaction fees alone.
In addition to annual or monthly fees, you’ll get slapped with reloading fees, ATM fees, and even balance inquiry fees.
If you haven’t yet succumbed to the misleading promises made by issuers, here are a few reasons you should continue to stay away. Pass the message along – friends don’t let friends use prepaid debit.
Prepaid debit issuers lead potential customers to believe a number of myths that one would be crazy to turn down. Let’s get to debunking, shall we?
1. Prepaid debit cards help one learn to budget.
FALSE – It’s true that you can’t spend more than what you put on your card, but nothing’s stopping you from reloading it (which, again, comes with a fee). If you loaded your card with grocery money for the week, what’s stopping you from spending it on some fancy new roller blades or that solid gold waffle maker? If discipline isn’t your strong suit, try buying cards specific to certain stores in order to regulate your spending.
2. Prepaid debit cards improve your credit score.
VERY FALSE – This is the myth that catches most people’s attention. Prepaid credit cards do not, I repeat, DO NOT improve your credit score. You aren’t borrowing any money, so there is no way to impress credit agencies. Many prepaid debit issuers claim to report to major credit bureaus, but don’t count on it.
3. I have bad credit so prepaid debit is my only option.
You guessed it. FALSE – The only real difference between a prepaid debit card and a traditional debit card are the mountain of fees that come with the former. Banks generally don’t check your credit when signing up for a checking account, so there’s no need to worry. Plus, if you have bad credit, there are a number of options outside of debit that will not only accept your application, but will set you on your way to improving your credit score.
Check out the Orchard Bank Card, one of the best cards out there for those with bad credit. If you aren’t approved for their unsecured card, try for their secured card, which allows you a credit limit equal to the amount you put up front. You get that initial payment back when you close the account, so it can’t be used to pay off your bill. This allows you to keep your spending in check and stay within your means.
Alternatives to Prepaid Debit
There are a number of alternatives to prepaid debit that not only improve your credit score, but could also land you some rewards.
If you are a young adult or new to the country, you may not have a long enough credit history to qualify for most unsecured credit cards. Check out your local credit unions for more accessible credit card options. Credit unions see you as a member, not a customer, so you’ll be treated with kind of respect and service you deserve.
If rewards are what you’re after, a cash back debit card could be the option for you. Like a regular checking account, you can’t over draw and there won’t be an inordinate amount of fees to tackle. The card refunds 1-2% of your purchase right back into your account. Be sure to find a card with a low minimum balance because some won’t allow you to earn rewards without a certain amount in the bank.
Tim Chen is the CEO of NerdWallet, a credit card company dedicated to helping you find the best credit cards hassle-free.
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