Why Prepaid Debit Cards Might Not Be Such A Good Deal
When gift cards surpassed traditional presents in popularity, I knew it was only a matter of time before we started just giving cash. And then, just as I predicted, the prepaid debit card arrived.
It's sort of the equivalent of cash, but more convenient than carrying around a wad of bills (and less awkward than gifting said wad of bills). Unlike a gift card, you don't have to guess whether the recipient likes a particular store. Heck, you don't even have to give prepaid debit cards as gifts - more and more folks are buying them for personal use.
As banks like to advertise, you don't even need a bank account or good credit to take advantage a prepaid debit card. Just load the card with your paycheck and spend. Convenient, huh? Unfortunately, it's a little too convenient.
Most of these prepaid cards come with ridiculous hidden fees - take the activation fee, for instance. I mean, why would you buy a card if you weren't going to use it? And that's not all, according to the New York Times.
Banks frequently charge for monthly maintenance, ATM withdrawal, and balance inquiries. Even if your card stops working, you could be charged for calling customer service. With some cards, you get charged a "purchase fee" every time you buy something. When you don't buy anything, they charge you an "inactivity fee." Talk about sneaky. If you made all the wrong moves, you could whittle away most of your balance in penalties.
Now, this doesn't mean that prepaid cards are always worse than credit or debit. Any time you deal with a bank, you should be on the lookout for hidden fees. Try to read the fine print (though, admittedly, they're called hidden fees for a reason - banks try to make it as difficult as possible to understand the rules). If you find fees that don't make sense or that you don't understand, call the card issuer and ask them if they can remove the charges. If you're losing too much of your paycheck to penalties, try using cash instead whenever possible.
If you keep getting dinged whether you're using a credit card, a debit card tied to an account, or a prepaid debit card, you've got a problem - for many people, that problem is debt. Maybe you've racked up so much debt that you can't pay the bills. Maybe you keep overdrawing on your account with your debit card. Maybe you have to get a prepaid card - and suffer the associated fees - because you don't qualify for any other type of credit.
No matter what your situation, there's hope. Reducing debt - through bankruptcy, for instance - can free up enough cash to make your financial life more flexible. So you're in control of your choices, not some bank. To learn more about how bankruptcy can free you from hidden fees, try a free personal debt analysis with one of our Chicago bankruptcy lawyers. For no cost and no obligation, you can find financial freedom.