Prepaid credit cards are definitely increasing in popularity as people try to find ways to control their spending and reduce their debt. Before you apply for a prepaid credit card, it’s important to consider the advantages and any potential disadvantages this type of account can have. Let’s begin with the downsides:

Disadvantages of Prepaid Credit Cards

There are some definite disadvantages to using prepaid credit cards that you should consider before you apply. The first is that you are using your own money. If you already have trouble saving money or if you frequently run short at the end of each pay period, then it’s possible that you also won’t have enough extra funds to put into your prepaid card anyway.

Some companies require that you leave a specified minimum balance in your account. You’ll also find there are fees involved with using a prepaid credit card. While there is no interest charged, there are account fees to consider.

Another danger with using prepaid credit cards is the temptation to transfer funds out of a traditional credit card to load the prepay card. By doing this, not only are you increasing the balance of your old credit card and increasing your debt, but it means you’re being charged interest on that money as well. This is defeating the purpose of having a prepaid credit card at all.

Some people may want to use their prepaid credit cards to pay for the monthly direct debit payments they make to some companies, like internet providers or insurance companies. Unfortunately, prepaid credit cards can’t be used for monthly automatic repayments. The primary reason for this is to avoid you missing a payment if you forget to deposit funds into your prepaid card to cover the repayment.

Even though the disadvantages of a prepaid credit card sound bad, fortunately there are more advantages to consider.

Advantages of Prepaid Credit Cards

A prepaid account is simply an account that you need to deposit money into before you can use your card at ATMs or stores. Because you’re using your own money, you won’t be charged interest on any purchases you make.

Another huge advantage is that you’re more likely to watch the amount you’re spending more carefully than you usually would, which has the benefit of teaching you financial responsibility and more control over your money. It has the added benefit of also helping you to learn responsible budgeting practices and it even helps you to learn to save, because you’ll need to allocate funds to put into your card.

If you want to increase the limit available on your prepaid card, you simply deposit more of your own money into your account. This means you’re not increasing your debt levels, as you would with a traditional credit card. You also aren’t charged interest fees for using your prepaid card.

If you have bad credit or no credit and you want to establish your credit positively, then a prepaid card is ideal. You don’t have to worry about credit checks or employment checks because you’re not borrowing any money. Make sure you apply for a prepaid credit card that will report your payments to a credit bureau and you could benefit from a better credit score.

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