Is a Prepaid Credit Card for You?

Posted by Judy Anne Cavey on Aug 17, 2011 in , , | No Comments

Amassing personal debt on top of student loan debt is a concern for many students. Here’s one way to tackle that problem…

Prepaid credit cards allow you or your parents to deposit money into the account for necessary expenses, when the card is used, the money is drawn from the account. However, there are certain things you need to know to protect yourself from being gouged.

According to writer Jeff Wuorio, in the Live Smart section of USA Weekend, take into consideration the following before investing in a prepaid credit card:

  1. Shop Carefully-Many prepaid cards have fees and charges attached to them. Look for activation fees, cash advance charges and other fees. Avoid as many as you can by comparison shopping.
  2. Overdraft Protection-It’s a good feature if you slip up once in a while. However, if you are not responsible and don’t bother to monitor your spending, it could cost you a bundle.
  3. No Credit History-A prepaid card doesn’t help you build your credit history. But, you also won’t jeopardize a credit history either since the three reporting agencies don’t monitor these types of cards.
  4. Secured Cards-Another alternative, with these, you deposit money but the deposit serves as a form of security. It functions as a regular credit card, but the interest rate may be much higher. Usually, these are for people who have damaged their credit history.

Choosing what to do requires discussions between student and parent. If you’ve been a responsible and mature person, handled money well, and could benefit from taking on a regular credit card, you can build a good credit history. But, if you’ve spent money as if the offspring of a billionaire (and you’re not), it’s best to take the safe route–through a prepaid card and learn to control your spending.

My suggestion: if your parents are hesitant about a credit card, try out the prepaid card for a semester and see how that goes. If you find you’re handling the card well, then graduate up to a regular credit card with a small dollar limit. Use it wisely, you’re building credit history for the future.


If you found this blog interesting or helpful, re-tweets and sharing is appreciated!