Pros and Cons of Prepaid Credit Cards

Fox 10 TV (Florida)
October 4, 2012
Emer, Jo

Prepaid cards are the fastest-growing segment within the plastic market. About $65 billion worth of transactions were conducted on these cards in 2011. These prepaid cards may be one payment option for the 50 million or so Americans who do not qualify for credit. Many of these consumers are young or unbanked. Some employers have started to distribute prepaid cards instead of paychecks. Prepaid cards can be an excellent way to practice budgeting, especially for college students. It does not allow the user to get into debt, but there is no approval process or interest rate. However, most cards have limits to how much of a balance they can carry. Reloading them may not be convenient, often requiring the user to go to a retailer or online. These cards also do not help the user build credit, and many of them offer fewer consumer protections compared to bank-based debit cards or traditional credit cards. Prepaid cards also tend to have numerous fees attached, such as activation fees, reloading fees, ATM fees, and dormancy fees.
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