The Pitfalls of Prepaid Debit Cards – What You Need to Know

The marketing of Prepaid Debit Cards has become a huge business targeting people with poor credit or those who lack the funds to open a bank account. So big a business, in fact, that it is expected to reach $440 billion by 2017. And it seems like everyone is trying to get in on the action with stars such as the Kardashian sisters touting “designer” cards. Even the Department of the Treasury has announced plans to test market prepaid debit cards in place of tax refund checks (more on that in a follow-up blog).


While prepaid debit cards have their benefits, there can be significant pitfalls associated with using these cards. Carefully weigh the benefits against the pitfalls discussed below to determine whether a prepaid debit card is right for your needs and situation.

Marketed Benefits of Prepaid Debit Cards:

1. No Credit Required – You don’t need to have good credit to get a prepaid debit card since it isn’t a credit card. Your spending is limited by the amount of your own money that you applied – or prepaid - to the card.


2. Safer than carrying cash – Unlike cash, if your card is lost or stolen, most will replace your card for a nominal fee. For your teens, this may be a much safer option than handing them cash and with greater control than giving them a credit card.


3. Alternative to a bank account – For people who lack the funds to open a bank account but need to be able to regularly cash payroll checks, a prepaid debit card may be a better option than check cashing services, especially if you can have your payroll check deposited directly to your debit card.


4. Enable on-line purchases – If you need to make purchases on-line, a prepaid debit card does offer the convenience of a credit card for on-line or over-the-phone transactions.

The Pitfalls of Prepaid Debit Cards: All Prepaid Debit Cards are Not Created Equal:

1. Unregulated Industry - With no laws in place to govern the types of fees or amounts that can be charged, all debit cards are not created equal. It’s up to you, the consumer, to do your homework, compare card costs and limits, and read the fine print on the cardholder agreement to understand the restrictions.


2. Fees can quickly eat up your balance – In addition to the purchase price of the card, some charge monthly maintenance fees, cash withdrawal fees, reloading fees, balance inquiry fees, inactivity fees and even bank teller cash advance fees. With fees as high as $9.95 a month for maintenance and $2.50 per ATM withdrawal, you can quickly eat up the balance on your debit card.


3. They don’t help your credit score – If you need to establish credit, a prepaid debit card won’t help you. Because you are using your own money, there is no credit risk associated with the cards so they don’t help establish credit worthiness. If this is your objective, you may be better off getting a secured credit card that has a credit line limited by a deposit.


4. Limited Protection - While it may be safer than cash, a prepaid debit card doesn’t carry the same level of protection as found with a standard credit card. Most will replace your card if lost, for a fee, but offer minimal protection for charges made on a stolen card, disputed purchases, or fraudulent charges. It is important to read the fine print regarding the cards restrictions and your obligations for reporting a lost card or purchases you didn’t make.

It pays to take the time to shop before you buy; do your homework to find a card with minimal out-of-pocket costs and it will really pay off in the long run. Remember, there are a lot of people making a lot of money off of your need for cash and convenience so be a savvy shopper, not a guppy for rich celebrities!

Do You Feel Trapped by Mounting Credit Card Debt?

If mounting credit card debt is keeping you from getting credit or making it difficult for you to keep up with the bills, then make 2011 the year you are going to regain control of your finances and your future. Every month you delay, fees, interest, and penalties will continue to pile up and make the debt trap that much harder to get out of.

The professionals at Credit Card Relief are ready to discuss your situation and help you determine what the best course of action is to tackle your debt. Give them a call at (866) 960-5454 for a FREE, no-risk, no-obligation consultation or click here to visit their website. You’ll rest easier tonight if you make that call TODAY!