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The Best Prepaid Credit Cards

Monday, June 27th

What Are the Best Prepaid Credit Cards?

Prepaid credit cards are a great resource for managing your spending while still getting the convenience of a traditional card. Because you deposit money to "fund" your prepaid card, it doesn't matter if you have a low credit score or no credit history at all. And, prepaid credit cards make it easy for parents to teach their teens about smart spending, without getting into financial trouble early on.

Why Do You Need a Prepaid Credit Card?

Picture this: you're 18 and in your first year away at college. Suddenly, you've got every credit card company known to man sending you enticing offers of low interest rates, guaranteed approval, and even shiny rewards programs to "make money" . Sounds great, right? Unfortunately, that's how a lot of people - young and older - start to have trouble with money management, with high interest rates on unpaid balances, late fees, and much more.

Prepaid Cards: A Safe Solution

Fortunately, there's a way to safely make purchases the same way you would with a traditional credit card, without the risk of getting in over your head: prepaid cards. Sometimes referred to as a "debit" credit card, these cards are funded by money you deposit in advance. You put in $500, you can spend up to that amount. Try to make a purchase that goes beyond what you've put in, and you'll simply be declined.

For that reason, prepaid cards are popular with parents who want to teach their teenagers (and young adults!) how to use credit wisely, with much less risk. Because these prepaid cards are issued by the same major banks as traditional credit cards, they can be used anywhere those cards are accepted - from gas stations to grocery stores and more.

Prepaid cards can also be given as a gift: unlike cash, these cards can usually be replaced if lost, and they give the recipient an almost unlimited array of choices where they can spend it. That gives this type of card a big advantage over gift cards that are tied to one particular store or company.

What To Look For In A Prepaid Card

So, if you've decided that a prepaid card meets your needs, what should you look for as you decide which specific card to get? Here are some criteria to keep in mind:

  • Rewards. Many prepaid cards give you the same attractive points, cash back, or other incentives as a traditional credit card. Be sure to choose a card with rewards that are relevant to you. For example, getting a card that gives rewards points for grocery shopping might not be a great fit for a teenager that still lives at home, but perfect for a new dad or newlyweds.
  • Fees. Many prepaid cards have costs associated with establishing and/or using them. You might have to pay a one-time fee to set up the card, or you may find monthly maintenance fees (usually around $5) for as long as the card is in use.
  • Card Brand. Your prepaid card is only useful if it's actually accepted. MasterCard and Visa tend to be accepted by the widest range of merchants, with Discover and American Express being somewhat more limited.

TopConsumerReviews.com has partnered with Lending Tree to help you find the best Prepaid Credit Cards in the industry. We hope this information will help you select the perfect card to help you manage your spending - or to give as a gift!

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FAQ

A prepaid credit card is something of a mix between a bank debit card and a traditional credit card. You fund it in advance, so you can only spend what you have, but you can use it the same way you'd use any other credit card.
A regular credit card gives you a credit limit, and you can spend up to that amount, paying it off in full or over time (with interest fees). A prepaid card has to be funded in advance; your charges are deducted from your deposit, and you can't spend anything else until you add more funds. But, a prepaid credit card can be used to make the same kinds of purchases as a regular card - up to the amount of your deposit, of course.
Some prepaid cards have the word "debit" printed on the front. But, most people associate debit cards with bank accounts, where purchases are deducted directly from your checking or savings as you shop. Prepaid cards deduct purchases from the balance on that card, but they're not connected to your bank accounts (other than when you make the deposits to fund them).
You will probably pay a small fee when you set up your prepaid card. Most of these cards also have a monthly usage fee of $5 or so. But, you won't pay interest, late fees, or missed payment fees!
That's one of the best features of using a prepaid credit card. You can use it anywhere your brand of card is accepted, with Visa and MasterCard having the widest reach. There are prepaid Discover and American Express card options too, but some merchants either don't accept them or require you to spend a minimum amount in order to pay with them.
Absolutely. Why not reap the same benefits offered by traditional credit cards? You'll find options that reward you with cash, points or miles.
Some people like to use prepaid credit cards for gift-giving: it's a little more upscale than handing someone cash, and it gives the recipient options for how to spend it. (Lots of places don't take anything but credit cards now, and you certainly can't pay cash for online purchases!) Prepaid credit cards are also a wise choice for those who are building their credit score for the first time or who have some black marks on their credit history: it helps them to control their spending and learn to make good financial choices, only spending what's actually available.
Not at all. Because a prepaid card poses no risk to the issuer, your credit score doesn't matter: you're funding it with your own money, not the bank's.

Advantages of Prepaid Credit Cards

If your credit is imperfect, you have a teenager or young adult that needs access to a Visa or MasterCard or you want to better control your spending a prepaid credit card is a great option. Credit cards not only make for convenient shopping but are also mandatory in many scenarios where a Visa or MasterCard must be made available. For example, shopping online, renting a car, or making reservations all require a credit card and asking someone else to help you out, each and every time, can be embarrassing.

Here are some advantages of a prepaid card:

  • No Interest. Many prepaid credit cards exist today that look and feel just like a credit or debit card. Withdraw cash at ATM's, upload a payment via the phone, establish direct deposit, speak to a customer service representative and more. But very importantly, there's not interest charges. Fees due exist and must be looked at closely but you'll never be charged interest for using your preloaded credit card.
  • No Credit Check. If you've had some financial challenges in the recent past or simply don't want another credit check to be reported to the credit agencies - a prepaid card is the place to go. With the balances being prepaid, no line of credit being issued, there's no need for any prepaid credit card company to ask for your social security number or inquire about past credit issues.
  • No Overspending. Whether you need help sticking to a budget or you're child does, a prepaid card is the card for you. Prepaid cards only have the balance available that you load on the card at the onset. There's no spending more than you should on an impulse buy or running over your credit limit with a prepaid card. Many people use these cards in place of debit and credit cards to stick strictly to their budget. Parents often send prepaid cards to their college students to help them out financially but without the risk of a credit cards and irresponsible spending.
  • No Contracts. You aren't bound to a prepaid card via a contract. You simply load the card and spend as you so choose. You may reload the card as needed and continue to use in the future.
  • Gift Giving. If you aren't sure what your friend or family member wants or needs next Christmas or birthday a prepaid card is a great option. Loading the prepaid card with your gift contribution allows them to buy exactly whatever they want. No returning gifts with a prepaid card.

In summary, a prepaid card offers several perks over a traditional credit card. Many appreciate the budgeting aspect while others enjoy no contracts or accrued interest. Either way, prepaid cards offer a lot of flexibility no matter what you need the card for.

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