It is often easy to associate prepaid credit cards with regular credit cards and debit cards. It may have something to do with the same rate of fees that they charge to their clients. But a prepaid credit card works differently from the other two payment cards.
If you use a credit card, you borrow money from your credit card provider to make a purchase. Meanwhile, debit cards deduct your payment from your bank account. On the other hand, prepaid cards only spend the money that you load in the card in advance. While the spending amount on prepaid credit cards is limited compared to the other two options, there are a few reasons why it always makes sense to use this card instead of using the others.
#1: To Assist In Creative Budgeting
One of the top ways to develop a good budgeting habit is to segregate your costs thoughtfully. You need to set spending limits using realistic estimates. Most importantly, you need to stick to these limits to make it work.
One of the most common creative budgeting techniques is the cash-in-envelope budgeting method. It works by splitting up your budget and keeping it in different envelopes labelled for specific uses. The same principle is used in a prepaid credit card. You may get several prepaid cards and label them in various spending categories. Then, you can reload the amount as often as you need so you can use the card for every expense.
#2: To Take Advantage of Credit Card Rewards
Plenty of people choose to use credit cards for the cashback points or other rewards promo that they can get each time they use the card. However, while this promo offers plenty of benefits, credit card usage may sometimes lead to overspending, especially if you have a higher spending limit in your account.
Fortunately, you can still get some bonus points and other rewards without the risk of overspending through prepaid credit cards. You can only purchase an item or pay for a service with the amount preloaded in the card.
#3: For Safer International Spending
It may be dangerous to carry a huge sum of money when going abroad. You may be at risk of losing that money when robbed or if you misplace your belongings.
You may reduce the risk of losing cash if you choose to use prepaid credit cards. It allows you to spend money within your budget since you load the amount before going to your destination. It also lets you avoid the hassle of going to a money changer since the preloaded amount is instantly converted into the local currency.
#4: To Avoid the Hassle of Credit/Debit Card Application
If you have difficulties opening a bank account, it would be impossible for you to get a high credit score. As a result, it would be harder to apply for credit or debit cards to use for spending.
By choosing a prepaid credit card, you can have a more convenient non-cash payment option without the need to submit plenty of documents. It also helps you avoid the burden of paying your shopping bills every month since each purchase is already deducted from your amount.
#5: Safer Money Spending For the Kids
If you intend to teach your children the value of money, you can let them use prepaid credit cards. It will allow them to have the financial freedom to spend money without the risk of incurring high credit card debt.
Also, the prepaid cards for your kids will let you avoid the need to co-sign a bank account with your children. In addition, it will help you avoid affecting their credit record.
Using prepaid credit cards definitely has plenty of benefits. However, you need to start considering applying for these cards to ensure that you can take advantage of these benefits.