What Are Prepaid Cards and Are They Right For You?
Prepaid cards have become popular alternatives to credit cards in recent years for two reasons: they help people build or rebuild credit, and they help people control spending. Just like it sounds, a prepaid credit card is a credit card that you put down an initial deposit, and your spending limit is equal to that deposit.
Why Get a Prepaid Card?
Prepaid cards sound very similar to a debit card, but they do allow you to build credit. The reason is, when you apply, you put down a deposit. That deposit is a guarantee that allows you to spend up to that amount. Think of it like a security deposit when you rent an apartment.
However, unlike a debit card, you still pay off the prepaid credit card monthly like a normal card. That deposit only comes into play if you don’t pay your bill. So, they everything is still treated like a normal card except for that special security deposit. And if you don’t pay your bill, the company will then use your deposit to pay off the balance and fees incurred, and they will close your account afterwards.
Is This Right For Me?
These cards are right for people who may not have credit. The reason is that if you don’t have a solid credit history, lenders may be leery to loan or extend credit to you. Using prepaid credit cards, you can build a credit history and show that you are responsible in making payments. Just never be late and always pay off the balance in full.
These cards are also great for individuals rebuilding credit for the same reasons. If you have a poor credit history, you may not qualify for traditional cards. These prepaid cards can help rebuild your credit score if you use them responsibly over time.
Finally, these cards are great for people who are trying to watch or limit their spending. Since there is a low set limit based on the amount of cash you deposited originally, there is no way you can buy something that you can’t afford. If you feel like spending may be a problem for you, a prepaid card can help you by taking away frivolous spending options and making you focus on purchases that you can afford and need to buy.
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