If you’re looking to open a prepaid debit card, you’ve come to the right place. Whether it’s to save money or help teach your child about budgeting, a prepaid debit card comes with many great perks and benefits. We’ve rounded up all the benefits of using prepaid debit cards, from what they are to how they work. Let’s dive in and see if a prepaid debit card is right for you.
What Is a Prepaid Debit Card?
A prepaid debit card can be used in an ATM or as you would a credit card or debit card. The one main difference is that these cards only allow you to spend what has been pre-loaded on them. Unlike a debit card that allows you to withdraw money from your checking account, a prepaid debit card is loaded with the amount of your choosing. Instead of a credit card limit or a bank balance to keep your spending in check, you’re in control of how much you choose to load onto the card. This is great for budgeting, repairing your credit, or even helping your child manage money and spending on their own.
Prepaid Debit Cards Help You Stick to a Budget
One of the biggest advantages of a prepaid debit card is that they help you stick to a budget. There’s no worry that you’ll overspend and lose rent money or spend too much credit. If you’re only looking to spend $100 in a month, you can load your card with that amount, and you’re done spending when it’s out. With a credit card and even a traditional debit card, it’s tempting to overspend or lose track of your budget.
Before you load your prepaid debit card, it’s helpful to create a budget. This means writing out all your expenses and income. This leaves you with a set budget for what you can spend on shopping or entertainment, for example. If you’re trying to stick to a budget, a prepaid debit card can be loaded with your set amount to help you stick to your budget.
There’s No Credit Check or Negative Impact on Your Credit
When you apply for a credit card, your credit report is pulled. The credit card company or bank is looking at your credit score to determine your creditworthiness. A high credit score shows you’re good at managing your debt and your finances. A poor credit score shows lenders and credit card companies that you might be struggling financially. This can make qualifying for a traditional credit card difficult. With a prepaid debit card, there’s no credit check. This means you can qualify regardless of your credit score. There is also no new line of credit being opened. When you open a credit card, these credit pulls, and new accounts can all negatively impact your score. You can keep track of your credit score for free by downloading a copy of your report from the Federal Trade Commission.
Prepaid Debit Cards Help Keep You Out of Debt
A prepaid debit card can also help keep you out of debt. Using too many credit cards and overspending can lead to an unhealthy debt balance. With a prepaid debit card, you can only spend what you’ve loaded on ahead of time. If you’re looking to reduce your debt and boost your credit score, a prepaid debit card may be the answer.
After you’ve gone through your monthly expenses, it’s time to set a budget and make a plan for paying down your debt. Start by carving out an amount to pay towards your debt each month. With what’s left, you can use your prepaid debit card for traveling, eating out, or entertainment. Leave them at home to help yourself stay on budget and avoid using your credit cards. Only taking your prepaid debit card helps you stay on track and not lean on your credit cards.
Using your prepaid debit card will also help you reduce your debt. When your debt is lower, this can also improve your credit score. The less debt you have compared to your available credit will help your credit score increase. This is known as your debt-to-income ratio. Your debt-to-income ratio can affect everything from your credit score to your ability to get an apartment, a mortgage, and even a job. Using your prepaid debit card instead of a credit card will help to keep your debt from creeping up and increase this ratio.
Prepaid Debit Cards Help Teach Kids About Money
A prepaid debit card is a great way to teach older children about money. Before giving them full access to a credit card or debit card, a prepaid debit card can help them learn credit basics and how to budget. You can load a prepaid debit card with your own money earned from a job or a set allowance from you. These are great for tweens and teens learning about credit, money, and how to stick to a budget. College students can also use a prepaid debit card before opening their first credit card.
If your kids are traveling abroad or away for school, this is also an excellent tool for keeping cash safe. Instead of traveling with cash, you can load small amounts onto a prepaid debit card before their trip. They can then use the card at an ATM or a restaurant without exchanging money and carrying around a lot of cash. You can always load more money onto the card as the trip goes. This will help ensure they always have access to cash when they need it. It will also help to keep them from using your credit cards.
For younger children, this is a great tool for teaching them about budgeting. As your tween earns an allowance or receives birthday gifts, for example, you can load a prepaid debit card for them to use at the movies, school, or out with friends. Once their money is gone, their spending is over. This can be a really helpful tool when teaching kids about staying on a budget and not spending over their means.