There are many effective ways to improve your finances and control your spending. One of the easiest and most overlooked solutions is to use a prepaid debit card.
A prepaid debit card is often seen as a pay-as-you-go card because it works similar to a debit card but it’s not linked to a bank account. Therefore, you must add money to the card if you wish to use it for everyday purchases.
Generally, prepaid debit cards are either Visa or Mastercard so you can use them wherever these are accepted.
Prepaid debit cards are not all convenience without any drawbacks, however. Some prepaid cards may come with initial and monthly fees and using one won’t help you build your credit.
That being said, there are a few reasons why you might want to consider using one to turn your finances around.
The great thing about using a prepaid debit card is that you can only spend the money you have since you’ll preload the card with funds.
This basically eliminates the opportunity to go over budget by making unnecessary extra purchases. One of the easiest techniques to use is to calculate a realistic budget and load the amount you plan on spending for the month onto your prepaid card.
Studies have shown that consumers tend to overspend when they use a credit card. Even if you’re not planning on overspending, knowing that you won’t have to actually pay for that extra item until your credit card bill comes out is a convenient temptation.
Give in to temptation too many times and you’ll wind up in debt pretty quickly. With a prepaid card, you don’t have to carry cash around each day and you can still avoid temptation.
Prepaid cards are a great first step if you’re looking to build or rebuild credit
I stated earlier that prepaid cards don’t allow you to build credit. So why would using one be a great first step to do so?
If you have no credit or a bad credit score, most people will recommend that you start by getting a basic secured credit card. While this is a great idea, it’s not the first step if you truly want to have a solid credit score long-term.
First, you need to understand how credit works and figure out how you’ll control your spending. If you can easily use a prepaid debit card and stick to your budget month after month, you may be ready for a secured credit card or even an unsecured credit card.
When you use credit cards to increase your credit score, it’s important to keep your utilization low and pay your bill off in full each month to avoid paying interest. You can learn to adopt better spending and money management habits when you start with a prepaid debit card.
They’re an ideal option if you don’t like banks
Let’s say you’re all for having a savings account but could really do without a checking account. Owning a prepaid debit card may be one of the best solutions to avoid getting a checking account.
With a prepaid card, you can hold your funds, check your balance, and track purchases without having to deal with the hassles that comes with a checking account—like dealing with overdraft fees.
If you don’t qualify for a regular checking account or would have to pay a monthly maintenance fee (due to some negative banking history in the past), signing up for a prepaid card will probably be cheaper and easier as long as you choose a card that has low or no fees.
Good to use when shopping for the holidays
Holiday shopping can be hectic. Most people don’t like to carry cash because it’s easier to lose as you go from store to store and there’s more to lose if you were to get pickpocketed.
On the other hand, credit cards aren’t much of a solution either if you have problems controlling your spending.
Holiday shopping for Christmas alone exceeded $1 trillion last year and while it can feel great to buy gifts for others, no one wants to come back to reality after the holiday season and realize they have a ton of debt to pay off.
Prepaid debit cards are improving
A few years ago, I might not have recommended prepaid debit cards to anyone because the high fees outweighed any potential benefits they could provide.
Now, many prepaid cards have made an all around improvement and they’re a strong contender for anyone who wants to improve or regain control of their spending.
They’re also a great option for teenagers and college students looking to learn how to manage a fixed income.
When searching for an ideal prepaid card, choose one that doesn’t charge high fees for activation or maintenance. Also make sure to choose one that doesn’t require you to maintain a minimum balance each month.
Also, consider cards that are easy to load. Some cards will even allow you to set up direct deposit with your employer. You should at least be able to load cash onto the card at a local currency exchange, via mobile check deposit, or online transfer.
You also want to make sure you’ll have free in-network ATM access so you can save money on ATM fees.
A prepaid debit card can help you improve your finances and get your spending habits under control. You can only spend what you put on them, so you don’t have to carry cash.
- When To Consider A Secured Credit Card
- Prepaid Credit Cards: The Good And The (Mostly) Bad