First, you might be asking, what is a prepaid debit card?

Well, glad you asked. A prepaid debit card works like a credit card – you can use it anywhere that accepts Visa or MasterCard, and use it for online or offline purchases. However, unlike a credit card, you deposit funds on the card ahead of time to make payments so there is a set amount on the card that you can spend. It is impossible to spend more money than you have deposited so you will not be incurring debt.

You are not charged interest when you use prepaid debit cards, but you are sometimes charged application fees, as well as fees for additional services.

Who is a good candidate and what are some ideal situations for using a prepaid debit card?

• Trouble with Credit – If you’ve recently had some financial hardship or struggle and are not able to acquire a credit card, this is a good option. A prepaid card issuer does not need to do a credit check in order to issue you a card. There are many things, such as car rental, that require owning a credit card and you can use a prepaid debit card for these scenarios. In addition, prepaid card issuers do not report your payments to credit bureaus, so it cannot further hurt your credit score. Of course, you are not able to build credit with a prepaid card, either.
• On the Road – When traveling, a prepaid card is not only convenient, but also very secure.
• Debt – Namely, it’s impossible to incur any debt using a prepaid card. This is especially helpful if you are trying to stick to a budget. There are no monthly finance charges. As mentioned previously however, do check the fine print for any additional fees that you may incur.
• Teenagers – If you need to curb some shopping habits, or not worry about your teen going crazy at the mall, a prepaid card may be a good option for your kids.
• Fed Up with Banks – If you are tired of continually seeing overdraft fees, fees for withdrawal, fees for direct deposit, and more and more fees from your bank, the convenience of a prepaid card, without all the extra banking fees, might be ideal for you.

Take a look at a prepaid debit card and see if it’s right for you. If you’ve had any experiences with these types of cards and can share your story, we’d love to hear from you in the comments!

Happy Shopping (and Swiping)!

- Kristen

I have great credit, but the number could always go up, if you know what I mean. So, my lender advised me to open another credit card account. Yes, seems counter intuitive, but as it turns out, the more debt you can show you can responsibly carry, the better you look to possible lenders. In fact, 30 percent of your score is based on the amount of debt you hold.

I have basically one credit card. I know, unheard of these days, but it’s true. The reason? I love to travel and my credit card earns me miles, which I redeem each year, or hoard for years and years saving for a fabulous getaway that I am unlikely to ever take. But, that’s beside the point (sort of).

So, a few pointers on credit cards:

1. Lenders like to see that you use credit cards. Use your cards, and don’t close accounts. Simply remember to use each card you hold on a regular basis to show that it’s an active account. Do not allow a company to close an account – just use the card every couple months and pay off the bill.
2. Credit cards with an annual fee are fine, if the rewards outweigh what you are paying in that fee each year. (I was relieved to find this out since sometimes I hate the $75 fee but if it gets me a free ticket I’d pay $500 for, then it’s worth it!)
3. Shop around. There are thousands of credit card options – cards with rewards, cards offered through your bank, through every merchant with whom you shop…you get the picture. There’s lots of competition so be sure to ask for a lower interest rate and a higher limit (even from your current card holders) and get the best deal for you.
4. Speaking of merchant cards, avoid those. Do you know that you actually lose 5 points off your credit score each time you open one of those to save 20% on that fabulous top you might wear 10 times?
5. Keep your balances low.

If you’re in serious credit card trouble and can’t hold an auction for designer goods to pay off your card like they seem to do in the movies, get help. Here is a good article to get you started, even giving tips and resources for avoiding bankruptcy.

So, what did I learn? Even though I have one great card and am paying off the balance each month, I’m not helping myself out, in fact, I could be hurting my credit score. So, I’m going to open a new credit card or two. Stay tuned on the score!

Happy Shopping!

- Kristen

p.s. I’m a shopping guru, not a financial professional, so be sure to consult someone who knows more than I do before you make any big moves!