be_ixf;ym_202207 d_01; ct_100
Text Size A A A

CESI Financial Blog

Get Debt Consolidation Options

Call Now! (866) 484-5373

The Prepaid Credit Card: How Does It Work, and Is It a Good Idea?

Use prepaid cards anywhere credit cards are accepted.

Have you considered using a prepaid credit card? If you have, but you’re not quite sure how they work, here are some of the pros and cons of using them.

What Are Prepaid Credit Cards?

Prepaid cards are basically the offspring credit cards and debit cards. They look just like any normal credit card, with a MasterCard, Visa, or American Express logo, a card number, a signature strip on the back, and company branding. However, prepaid cards are not like credit cards because they do not provide a line of credit. Nor are they exactly like debit cards, because they are not attached to a checking account. Money is added, or loaded, onto the card directly at the store or bank where it was purchased or by electronic funds transfer. Prepaid card can be either reloadable, so you can add more money on the same card, or non-reloadable, like a gift card.

Pros of Prepaid Credit Cards

Reloadable prepaid credit cards are a good alternative to debit or credit cards if you do not have a checking account, because you can have your paycheck deposited directly onto the card. You can also use it to automate giving your child an allowance. They are great to use to control recreational spending to protect your budget. Once money is loaded onto the card, it can be used just like a credit card anywhere major credit cards are accepted. Prepaid cards also have no overdraft fees, whereas the national average overdraft fee per transaction from a checking account is $30, according to TheStreet.

Cons of Prepaid Credit Cards

Prepaid cards can come with hefty fees, which can eat up over half of your money loaded onto the card if you’re not mindful. According to CardHub, prepaid cards have an average of 11 different fees, such as activation charges, fees for making a point of sale transaction with your signature, or monthly maintenance fees. Because prepaid cards are gaining in popularity and being used more widely, the fees continue to grow. CBS News reports that prepaid credit card fees are up by 21 percent compared to a year ago, especially when used as an alternative checking account (up 53 percent), a child’s allowance account (up 11 percent), and as an alternative check-cashing tool (up 23 percent). Also, prepaid cards endorsed by celebrities like Justin Bieber, Lil Wayne, and Russell Simmons can be 33–51 percent more expensive than other cards.

If you’re considering a prepaid card, CardHub notes that they are usually much less expensive from a larger bank or credit union vs. smaller firms or companies. CardHub can also help you compare different prepaid cards so you can find the one that best matches your financial needs and budget.

Prepaid cards are a good idea to help with managing your money, and there are many companies and financial institutions that offer them. Just make sure you are familiar with all of the fees and know exactly what you will be paying for before you commit to a prepaid credit card.

Image source: Flickr


Leave a Reply

Your email address will not be published. Required fields are marked *


Consumer Education Services, Inc. empowers people to overcome their financial challenges and lead financially-healthy lives.


Debt Consolidation

Financial Education

Homeownership Center

View More of Our Services »


Financial Information about this organization and a copy of its license are available from the State Solicitation Licensing Branch at 919-814-5400. The license is not an endorsement by the State. 

Follow Us

Registered 501(c)(3). EIN: 56-2106758

Consumer Education Services, Inc. © 2022