Pro´s and Con´s of Prepaid Debit Cards?

In the mid 1990s, there was a sudden explosion in the prepaid debit card sector. It was a time when the credit card companies suddenly realized that a large portion of the population in the United States were ineligible for credit cards as they did not meet the criteria for acquiring one. On the other hand, the people, who did qualify and used credit cards, often failed to pay their outstanding balances and declared them selves insolvent. This led to a significant rise in losses.

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In order to remedy this situation in the credit card market, banks came out with a secured credit card. The secured credit card consisted of a credit line that had as security, a pledge of an equivalent sum of money deposited with the credit card bank. Initially, in the first few years of starting this secured credit card, the credit line was kept at 100% of the savings on deposit. Once the bank had determined that the customer had an adequate payment record, the bank would start extending small amounts of credit beyond that of the amount of savings, sometimes even up to 200% of the deposit given. In this way, the bank had generated a stable and secure credit card customer who in another event might not be eligible for a credit card. The bank also ensured that it could curtail its losses if the customer defaulted or failed to pay.

The next type of secured credit card was in the shape of a prepaid debit card. The funds were put directly into a Visa or MasterCard prepaid debit card either at a merchant location or online with a bank which marketed the products. These products were similar to a prepaid phone card. They basically converted paper currency into electronic currency that could be accessed through a plastic card which was in essence a debit card. Prepaid debit card credit lines would always be set at the amount deposited. This amount would then decrease with every expense or purchase made via the debit card.

The prepaid card has a host benefits. It is safer than carrying large amounts of cash and it has the versatility of world wide use due to the Visa and MasterCard merchant acceptance. You do not have to stress about paying or not having paid a credit card bill or going into a loss or debt. Any person over the age of 18 is eligible to apply for a debit card and can qualify regardless of his credit history. It has the advantage of being reloaded with any amount of money online, over the phone or at any ATM worldwide.

However, it comes with a few disadvantages as well. You cannot afford the comfort of using the bank funds free for 25-30 days as availed by credit card users, although this can be considered an advantage by some. The other disadvantage is that if the card is lost or stolen Visa and MasterCard have much stricter notification requirements than with a credit card.

On the whole the benefits of prepaid debit cards generally prevail over the disadvantages – more so for people who do not have access to standard credit cards due to lack of or poor credit history.