It’s no secret that obtaining the best credit card can be difficult when you have bad credit. If you are lucky enough to get your hands on a credit card for bad credit, you are likely to suffer high interest rates as a result.
This is why some consumers walk away from credit cards all together, instead opting for prepaid debit cards. Not only are they easy to use, but they save you money down the line.
What Are Prepaid Debit Cards?
Prepaid debit cards are not the standard debit cards that link to your bank account and double as ATM cards.
They are cards you obtain or purchase separately and do not require a bank account because they serve as an account of their own. With the card, you are able to add money to an account and process transactions that would usually require the use of a credit card (car rentals, airline ticket reservations, online purchases, etc.).
How Prepaid Debit Cards Save You Money
It may be difficult to believe that using a prepaid debit card rather than a credit card could save you money, but there are several ways in which it can:
- Free or inexpensive to obtain: Many companies offer prepaid debit cards for free, while some major credit card issuers like Visa and Mastercard may charge only $5-$10 for purchase of a prepaid card and each time you add money to it. This is unlike a credit card that could charge you hundreds of dollars in fees to use it if you have bad credit.
- No interest rates or monthly bills: Also, unlike credit cards, prepaid debit cards don’t charge interest on what you spend because you pay ahead of time. They don’t send you monthly bills or charge late fees, either. Instead, your card simply becomes invalid if you run out of money.
- Spend only what you have: Using a prepaid debit card means you’re spending money that you’ve placed on the card up-front. The very nature of the card helps you avoid debt since you can only spend what you currently have.
Saving money is just one of the benefits of using the prepaid debit card. Gaining financial responsibility and improving spending habits in order to transition to traditional credit cards are some major perks, too.
Learning Financial Responsibility
The ability to only spend what has been placed into an account ahead of time helps the prepaid debit card teach cardholders financial responsibility.
Consider this scenario: you add $50 to the card and then take an unexpected trip to the mall with some buddies. Before you know it, you’re in front of a beautiful $150 outfit that you can’t live without.
If you had a credit card with a $500 limit, you’d probably splurge on the outfit right then, with no idea how you will actually pay the purchase amount back later. With the prepaid card, you are forced to show some restraint and realize that the $50 is really all you have to spend.
Transitioning to Credit Cards
The only downside of a prepaid debit card is that that unlike a prepaid credit card, prepaid debit cards aren’t reported to the credit bureaus and cannot help you build credit. That’s why it’s good to transition to a credit card at some point in the future.
You could start by using the prepaid debit card to make credit card-like purchases online or at retailers, and simultaneously pay-off any debt negatively affecting your credit report. When you do qualify for a credit card, you will feel comfortable knowing that you have the skills to buy only what you need and pay back what you borrowed in a timely fashion.
Prepaid debit cards are excellent financial tools that help individuals with bad credit make necessary purchases, learn financial responsibility and save money. If you think you might enjoy these benefits then it may be time to get your hands on your own prepaid debit card.
