Prepaid debit cards have been used extensively since the 1990s when the credit card companies realized that much of the population did not qualify for many of their credit cards. Even when people did qualify for those credit cards, too often would people falter on making their payments, which would usually lead to bankruptcy and losses for the banks. The first attempt by banks to rectify this problem was to present “secured credit cards,” which required the card holder to have savings on deposit at the bank that issued the credit card. The card holder could only charge up to the amount that he/she had in the bank. Over time, the bank would allow the card holder to charge more than he/she had on deposit, thereby increasing the customer’s buying power while limiting the bank’s liability if the customer defaulted on his/her purchases.
Eventually, the secured credit card became the prepaid debit card, which allowed funds to be directly loaded onto a Visa or MasterCard prepaid debit card. This could be done either online via a bank that marketed prepaid debit cards or via a merchant location that allowed you to add money to the prepaid debit cards.
Prepaid cards have many advantages. One advantage is that a prepaid debit card is much safer to carry than cash. Another advantage is that most prepaid debit cards are accepted worldwide due to the fact that Visa and MasterCard issue prepaid debit cards. A third advantage is that you cannot overspend when you have a prepaid debit card. This is because you can only spend the amount of money that you load onto the card itself. When the money loaded onto the card is exhausted, you must load more funds onto the card before you can use the card again.
Another advantage of prepaid cards include the fact that virtually anyone over 18 years of age can be accepted for a prepaid debit card regardless of how poor his/her credit history is. A final advantage is the fact that prepaid debit cards can be loaded with funds in three different ways: by phone, by any ATM worldwide, and online over the Internet.
There are some disadvantages to prepaid debit cards that you should be aware of. One disadvantage is that you don’t get the usage of a credit card bank’s funds for the rest of the month. The only amount of money you are allowed to spend is the amount of money that you load onto the card; without any funds on the card, the card is useless for making purchases.
In addition, Visa and MasterCard place much stricter notification requirements in the event that your prepaid debit card gets lost or stolen as compared to traditional credit cards. You must alert the credit card company of the loss or theft of your prepaid debit card within two business days to ensure you are not responsible for more than $50 of unauthorized use. If you contact them after two business days, the amount you’re responsible for can increase up to $500. After 60 days, you may be responsible for all of the money loaded onto the card, plus any line of credit that is provided as overdraft protection.
Prepaid debit cards always have a large number of fees associated with them as compensation for its convenience, so using prepaid debit cards is quite expensive. In addition, using a prepaid debit card does not help you to establish a good credit rating, due to the fact you are spending money that you load onto the card and not a bank’s line of credit.
The usage of prepaid debit cards has been increasing steadily for over a decade. The advantages of prepaid debit cards include the ability to use them virtually anywhere in the world, the increased ease and safety of carrying them over cash, and the ability to prevent you from overspending. The disadvantages of prepaid debit cards include the fact that you only have your own money to spend to use the card, you must notify a loss or theft of your card to the credit card company within two days to avoid being responsible for more than $50 in unauthorized transactions, and the numerous amount of fees that make having a debit card expensive to use. You need to consider your financial situation carefully before applying for a prepaid debit card to ensure that having a prepaid debit card is the best option for you.