An Insider's Perspective on Prepaid Debit

An Insider's Perspective on Prepaid Debit

My name is Tim Greene, and I want to let you in on a secret: I spend too much money.

Published Wednesday, September 25, 2013

My name is Tim Greene, and I want to let you in on a secret: I spend too much money. I use plastic to pay for everything so I never see any actual cash. Sometimes I kid myself into thinking that everything is free.

In the past when I’d overspend, my overdraft protection would kick in so it was no big deal. I knew I had to get this bad habit under control so I switched to using a prepaid debit card. Now I load a specific amount on the card each week and that’s all I can spend. It has really helped me stop and think about what I’m buying (and it makes my wife happy, too!) and for me, it’s the best budgeting tool I’ve ever used.

But what exactly is a prepaid debit card?
Very simply, it’s a debit card that has money preloaded onto it. And like a debit card, when you purchase something, the funds are deducted immediately so you can only spend what you have available. Because you aren’t borrowing money to pay for things, there’s no monthly bill and no chance of running up a big balance or those expensive overdraft protection fees.

Another plus? You can use your prepaid debit card at the same places that accept a regular debit card. You can even get cash from an ATM. Best of all, you can add money to the card (at no additional cost) any time you want - quickly and conveniently - from your checking or savings account, or from another debit or credit card. Finally, if you lose the card, there’s no need to worry; the balance can be transferred back to your credit union account.

Who should be using a prepaid debit card?
Prepaid debit cards are great for students, young adults starting out on their own and anyone who likes to keep close track of what they’re spending, including travelers. Let’s take a quick look at three different people who can benefit from using a prepaid debit card:

Meet Sue.
She’s headed off to college and her parents want to give her money every month for clothes, an occasional movie and trips to the drugstore. All they have to do is electronically add money to her prepaid debit card and Sue’s all set. She can use the card anyplace that takes a VISA® debit card and the amount she spends is simply deducted from the total on the card. She can’t spend more than she has, can’t run up any bills and can easily go online to see how much is left on the card at any time. (Guess what? Her parents can check the balance, too, to see exactly what she’s spending.) And if her car suddenly needs new brakes, her parents can reload her card so she can quickly get the repairs made. No waiting for a check to arrive in the mail. It’s a win for Sue and her parents. Convenient, safe.

Say congratulations to John.
He just landed a great job at an online company. He’s going through training, and he’s not sure if he’ll be living in Chicago or Denver. He hasn’t chosen a bank yet, and he doesn’t want a credit card because he’s heard some horror stories about debt and big bills to pay. A prepaid debit card is perfect for him. He can have his paycheck deposited directly to it, and it’s available for him to spend immediately. It’s portable so no matter where his company relocates him, the card will still work. If he wants to start building his credit history, he can get a credit card with a low limit and begin to build his credit conservatively.

Megan has a secret, too.
She wants to surprise her husband with a special weekend trip for their anniversary. Every pay period, she takes a little out of her check and adds it to her prepaid debit card. After a few weeks, she’ll be able to go online and book the fancy hotel she wants using the card. Once they arrive, she can use the card to pay for the entire weekend - meals out, boat rental, gas, even massages and there won’t be a big bill looming next month.

Is a prepaid debit card right for you?
It can be if:

• You want to purchase things online or in stores.

• You don’t want to carry around a lot of cash.

• You don’t want to run up a credit card bill. With a prepaid debit card, you’re not borrowing money, only spending the money you have available on the card.

• You are a student away at school and your parents want to give you money on a regular basis.

• You are a parent and you want to get money to your child quickly and conveniently. • You like to travel and want to keep your spending in check without carrying cash.

• You like to track your spending online.

• You want to set money aside for an extra special gift or surprise getaway but don’t want to open another bank account.

• You don’t have a credit history (or you have a bad one) so you can’t qualify for a credit card right now.

Sound too good to be true?
There can be a few downsides:

Remember that you can’t build a credit history with a prepaid debit card, and there are a few fees associated with the card including activation and monthly maintenance fees.

When used correctly, a prepaid debit card teaches good money management skills. And it’s the smart way to use plastic to pay for things. If you saw shades of yourself on the list above, it may be a great option for you, too.

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