What are the pros and cons of prepaid debit cards, what are the types to know, and who can benefit from using them? If you have questions – BusyKid has the answers.
Let’s take a closer look at the pros and cons of prepaid debit cards, how they work, and what to expect when you pick up one. But first, let’s answer what prepaid cards are.
What Are Prepaid Debit Cards?
A prepaid debit card shares some similarities to a credit card, a gift card, and a regular debit card. However, it comes with its own unique sets of benefits and pitfalls.
A debit card preloaded with money and prepaid debit cards can usually be used at any retailer that accepts credit cards. Also like credit cards, prepaid debit cards are often associated with card networks, like Visa or MasterCard.
Every purchase you make using a prepaid debit card will deduct the amount that’s already been loaded. Once you reach the end of the pre-loaded cash, you won’t be able to buy anything else with the card.
When the balance of the prepaid debit card starts dwindling down, it’ll be possible to add more money through a direct deposit or with cash. However, there might be a fee you’ll have to pay, but more on that a bit later.
The Pros and Cons of Prepaid Debit Cards
Now, let’s get into the reason we’re here – the pros and cons of prepaid debit cards, why you might want them, or why an alternative would work better for you.
The Pros
First off, let’s start with the pros of the pros and cons of prepaid debit cards as there are many to consider.
Not Affected by Poor Credit
Whether your credit score isn’t the best or you want to get the card for someone who can’t have a score yet, like your child – prepaid debit cards might be the solution. When you get a prepaid debit card, there is no credit check required. As there are no payments, card providers don’t take any risk, which makes issuing prepaid debit cards much easier compared to credit.
No Need for a Bank Account
The prepaid debit card is like a bank account within and in of itself. If you can’t or don’t want to open a checking or savings account, a prepaid card could be an alternative to paying bills by check. What’s more, it’s a good alternative for those who want to give their kids and teens spending power without potentially hurting their bank accounts.
Safety and Convenience
Another pro of prepaid debit cards is that they’re just as safe as regular debit cards. They’re PIN-protected, which means that funds can’t be released from the cards without successfully entering a PIN.
What’s more, once you register your prepaid debit card, the provider is required to offer protection in case of theft or loss under the Consumer Financial Protection Bureau provisions.
Easily Tracking Spending
If you have difficulty managing your finances or want to keep track of how your kids are spending and where – a prepaid debit card can help. With a prepaid card, you can track and monitor your and your family’s spending.
What’s more, if you get the BusyKid Spend Card, you’ll have an app to go with your card. The app can help families track, analyze, and streamline their spending, saving, and investing.
Automatic Budgeting
With a hard stop on spending, prepaid debit cards offer the option for automatic budgeting. If you have a hard time with impulse purchases or are trying to stick to a strict budget, these cards can prove to be a helpful tool to prevent overspending.
However, you should know that some prepaid cards allow account holders to overdraft and spend more than the balance. For that service, they might charge you a fee.
If you’re worried about overspending or over-drafting, find a provider that doesn’t have this feature.
Excellent Teaching Tool
If you feel like your kids are ready to take on certain financial lessons and believe in teaching them using real-world scenarios, prepaid debit cards might be the solution. Prepaid debit cards can be used to introduce concepts of spending within limits and understanding using plastic instead of cash. Also, parents can use prepaid debit cards to give out allowances, helping children practice money management skills.
The Cons
Continuing our list of the pros and cons of prepaid debit cards, it’s time to talk about some of the drawbacks you might come across. While there aren’t too many negatives, it’s important to cover them all to ensure you’re making an educated choice, whatever you decide to do.
Possible Fees
Depending on the prepaid debit card and the provider you choose, it might come with a host of attached fees. Some of the most common fees you’ll see include:
- Card Activation
- Withdrawing funds at the ATM
- Foreign transaction fees
- Making purchases
- Adding funds to the card
- Checking the balance
- Replacing lost cards
- Inactivity for a period and no transactions
If you’re considering getting a prepaid card, make sure to shop around and see which provider charges which fees.
Don’t Affect Credit Scores
As we mentioned earlier, having a prepaid debit card doesn’t have an impact on your credit score. Depending on your financial situation and goals, that could be a benefit, but a drawback, too.
The provider of the prepaid debit card will not report any of your payment activity to credit bureaus. So if you’re looking to strengthen that score, a debit card might not be the best choice.
The BusyKid Spend Card
If the reason you’re looking to get a prepaid debit card is to give your family and children spending freedom – consider the BusyKid Debit Card for kids. It will give your children freedom while being secure and convenient.
It’s simple to use and helps streamline the entire process of chores to spending as parents can add allowance in just a few seconds. What’s more the BusyKid Debit Card is backed by Visa Zero Liability policy. If the card gets temporarily misplaced or lost, parents can lock them with just a press of a button.
To start making the most of the BusyKid Debit Card, download the app today!
