Is a Prepaid Debit Card a Good Alternative to a Credit Card?

Posted on September 23, 2012 Written by 11 Comments
prepaid debit cards

A prepaid debit card, like a Pockit prepaid card, lets you load a pre-deposited amount of money onto your card. Then you can shop online and make in-store purchases just like a credit card until the money on the card is spent.

The main difference between a prepaid debit card and a credit card is:

  • A prepaid debit card deducts funds from money you pre-deposit onto the card
  • A credit card makes purchases on credit, which must eventually be repaid

If you want the convenience of a credit card but don’t have the credit to qualify for one, or you don’t want to incur debt or interest payments, a prepaid credit card is a smart alternative.

Why? Because prepaid debit cards:

1. Lets you earn cash back and are accepted anywhere

One of the main reasons people want to get a credit card is because of the rewards and cash back you can earn. The truth is, many prepaid debit cards offer the same benefit of earning cash back, rewards and discounts.

This makes them just as convenient as a credit card, plus it’s a whole lot safer than carrying around a wad of cash. If your prepaid debit card is associated with Visa or Mastercard, you will have all the convenience of getting cash out of an ATM, and being accepted worldwide at any place these major credit cards are accepted.

2. Can be safely and securely used online

One misconception about prepaid debit cards is that they aren’t as secure or safe to use when shopping online. This is not true. The prepaid debit card isn’t connected to your bank account so it’s like a built in fraud protection, saving you from the identity theft that’s often connected to online shopping.

With prepaid debit cards, you won’t receive any bank statements, which is a much greener alternative. And again, this saves you from having your information available to people who want to steal your identity.

3. Help curb your spending instead of incurring debt

Once the money is loaded onto your prepaid debit card and you spend it, that’s it. You can’t do any more spending until you load the card again.

This makes it a great way to control your spending, instead of using a credit card that racks up debt. Prepaid debit cards are also a great option if you have poor or no credit, because these cards do not require a credit check.

4. Have much lower fees than credit cards

Credit cards come with a variety of fees, like over the limit fees, annual fees and high interest charges. Prepaid debit cards don’t come with any of these fees, because you’re only spending money you pre-loaded onto the card.

This means you’ll be able to save more of your money instead of spending it on fees and interest charges that come with credit cards.

5. Conveniently pay your monthly bills online

Prepaid debit cards can be used just like credit cards to make payments online for household bills like, electric, internet and other monthly expenses.

You can have the money automatically deposited onto your card with funds from your employer or add the funds directly online or over the phone. Then you can easily pay your bills on time without the worry of missing payments.

For these reasons, prepaid debit cards are just as safe, secure and convenient as using a credit card – and even more so because it keeps you from racking up unnecessary debt. Plus you won’t have to worry about paying off your credit card bill at the end of the month.

Do you agree? Is using a prepaid debit card a smart alternative to a credit card?

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Filed Under: Credit Cards Tagged: , ,
  • http://www.moneylifeandmore.com/ Lance@MoneyLife&More

    Just be careful with which card you get. Some are loaded with fees from what I understand so get the one with the least amount of fees possible.

    • http://carefulcents.com/ Carrie Smith

      That’s a good point Lance. All types of plastic seem to come with some sort of fine print or fee. It’s a good idea to always be careful and pay attention.

  • http://www.debtfreeteen.com/ Debt Free Teen

    When I decide to use credit cards, I would to tend to go with a no fee credit card that earns miles. I’m hoping to travel more in the future.

  • http://watchoutforflyingninjas.blogspot.com/ Robb @WatchOutForFlyingNinjas!

    I have a credit card that I use to pay one recurring monthly bill just so I can keep my FICO score up so I can rent without hassle. I use the envelope system for things like groceries so that is all cash but something like this would be appealing for budget items where it is more of a hassle to go all cash. One example I can think of is buying gasoline where it is a lot easier to just pay at the pump – something like this would be a lot more convenient. Right now I use my Visa check card for that, but I can’t delegate funds specifically for that. I was looking at Green Dot but I’m a bit wary about the fine print associated with these things like what Lance brought up.

    • http://carefulcents.com/ Carrie Smith

      I have a credit card that I use for my freelance business expenses. Like you, the only reason I use it (very sparingly) is to keep up a good FICO score so I could qualify for a nice new apartment.

      I’m thinking of researching some of the best prepaid debit cards, so I’ll have to look into that. I’ve used Green Dot in the past, but I’m not sure how they are now. All cards seem to have some sort of fees attached to them…which makes it super annoying.

  • http://www.onesmartdollar.com/ Sean @ One Smart Dollar

    I use a credit card for the sole purpose of earning airline miles. I think if you do not have the credit to get a credit card, you probably shouldn’t be using one anyways. A pre-paid debit card is a great alternative as long as you watch out for the fees. There have been some released recently with celebrity backers and the fees have been way up there.

  • http://www.mymoneydesign.com/ MyMoneyDesign

    If I didn’t qualify for a credit card with a ton of rewards, I’d consider using one of these. I might also come back to them when my kids grow up and go off to college as a way of keeping them under budget.

    • http://carefulcents.com/ Carrie Smith

      That’s a really good point! Helping college/highschool kids learn to use plastic with a prepaid card is smart. It would definitely help them stay on budget by not spending more than they have.

  • http://www.growingfamilybenefits.com/ Kevin Haney

    These cards remind me of gift cards. Issuers make big money on slippage. People put value on the card, and then fail to redeem all of the value. They lose the card, forget they have it, or lose track of the balance on the card.

    • http://carefulcents.com/ Carrie Smith

      That’s true. If you don’t keep up with the cards, you could potentially lose the amount left on the card. Some prepaid debit card companies are good about replacing lost cards though.

  • http://www.facebook.com/people/Mike-Knollhoff/1804906162 Mike Knollhoff

    There are all sorts of fees associated with most prepaid cards, though some companies like Chase have better deals now. Second issue is most renal car companies will not accept a prepaid card for rentals.