It’s easy enough to make purchases with cash, credit cards, and debit cards, but those three options don’t always allow the flexibility you need. If you’re looking for an alternative, you may consider a prepaid debit card instead.
If they sound vaguely ominous, rest assured: Prepaid debit cards have come a long way in the past 10 years to offer versatility that can solve some of your most annoying banking issues.
How Does a Prepaid Debit Card Work?
A prepaid card is very similar to a debit card, but it’s not linked to your bank. Instead, you load your money directly onto your prepaid card itself. And what you load is what you get. If you put $100 on the card and spend $98, you can’t make another purchase over $2 until you load more money onto the card.
It’s fairly simple to reload a prepaid card, though be warned that fees do sometimes apply. The methods include:
- If you have a bank account, transfer money from your bank account (no fee)
- Have your direct deposit sent to your prepaid card (no fee, and many cards offer to waive the standard monthly service fee if you use the direct deposit feature for more than $1,000 a month)
- Transfer money from your PayPal account
- Reload with cash or another card at Wal-Mart, Walgreens, or other participating locations (fees apply, usually around $4.95)
Give Your Kids Safe Access to Money
With a prepaid debit card, spending is controlled. You can load any amount of money onto it, whether it’s $10 or $500, and your child won’t be able to access a cent more unless you choose to load more yourself.
This makes it a safe and simple way to give your kids access to funds without opening a bank account. Prepaid cards also teach children a sense of budgeting. If your son knows he only has $20 for his night at the movies, he’s more likely to pace himself and choose the small popcorn instead of the extra-large.
ChexSystem is the type of database that you never know about until your name becomes listed within it. Think of ChexSystem as a credit bureau specifically for banks. If you run up a negative balance in a standard checking account and fail to pay it off, your bank reports you to ChexSystem for the amount owed.
Your name remains in the ChexSystem for five years. Since all banks run your name through ChexSystem before approving any new account, it’s nearly impossible to open a new checking account until you’re cleared from ChexSystem. Some banks do offer “Second Chance” checking accounts, but they charge heavy fees and impose tight restrictions to prevent you from dipping into the negative again.
Prepaid debit cards offer a way around this issue by replacing your checking account. The best prepaid debit cards enable direct deposits, mobile check deposits, bill pay features, and fee-free ATM withdrawals, but they don’t check your credit or run you through ChexSystem. This means approval is automatic and you can rest easy knowing you have easy access to your hard-earned money.
For Those on Tight Budgets
Prepaid debit cards are versatile since they’re associated with major card networks like Visa, American Express, Discover, and MasterCard. You can swipe a prepaid card nearly anywhere that you can swipe a debit card. This makes a prepaid card a great choice for college students who need the freedom to make purchases without the hassle or concern of overdraft fees, credit card debt, or impulsive spending.
For example, if you’re a student with little income, load $200 onto your card and stretch that for monthly groceries. As long as you don’t use other sources of money to buy groceries, you’ll stick to your budget. It’s like a digital envelope system!
The streamlined functionality of a prepaid card can serve many different purposes, whether you need to force yourself to economize, live within restricted means, or find an alternative to a standard bank account.
Don’t wait to get out of debt! Read this: A Complete, Step-By-Step Guide to Get Out of Debt.