Pros and Cons of using Prepaid Credit Cards

Prepaid credit cards provide both pros and cons over traditional credit cards. Consumers should weight these advantages and disadvantages to find out what is right for them.


Anyone with the money can get them

Not everyone qualifies for traditional credit cards. If you have no credit or bad credit, then you may have difficulty being approved. With a prepaid credit card you will give the cash in advance, so your credit will not matter. If you want a credit card to use online or to give to a relative who cannot get credit, then this is a reasonable method.

You know the money is there

Debt has crept up on many people. It is far too easy to decide just to make the minimum payment on credit cards. Suddenly the debt piles up and up and up. When you use a prepaid credit card you do not need to worry that you will spend more than you have because it will not let you. It may inspire people to make more intelligent decisions about spending.

You can give them to people

Prepaid credit cards make excellent gifts. You may prefer not to give someone cash, and of course you are not going to give an actual credit card. It is convenient because you can just transfer it to someone else.


You may pay extra

There are a lot of traditional credit cards that do not charge a monthly fee. Many prepaid credit cards do charge a fee however. Even if this number is small, it can add up over time.

You will lose the value of the money

Money in your hand today is worth more than the same amount of money in your hand tomorrow. Because of the time value of money you will lose out by needing to pay for the credit card in advance. You could have put that money into an interest-bearing account, for instance.

You will lose out on rewards programs

A lot of traditional credit cards have rewards programs. They may offer you a percentage of cash back or airline miles good towards tickets or other perks. These do not typically show up on prepaid credit cards.

It will not build up your credit

If you use a traditional credit card in a wise manner by staying out of debt and making timely payments you can improve your credit. Prepaid credit card do not offer this advantage.

Prepaid credit cards can be purchased at a number of places including some grocery stores and malls. Consider the good and the bad when deciding whether to purchase such cards.