Had I known the pros and cons of prepaid debit cards, I might have picked a different option or at least weighed my choices more carefully when I traveled to Germany in 2007. It was during this trip—in the middle of this trip, no less—that I learned what disadvantages come with using prepaid cards. But if you’re planning on using a prepaid card and not just for travel, you’ll want to know what the pros and cons of using a prepaid card are so that you can make the best choices for your money. Or you could be like me and discover, during the middle of your semester abroad, that your card company had been sold and you can no longer add money to your prepaid card. I wish I could tell you that I was kidding.

The advantages

Before I delve more deeply into some of the cons of owning a prepaid card, I feel I should reiterate the mass number of benefits of having one. The advantages of owning one are too numerous to ignore, and despite what happened on my European adventure, I still use these cards. Here are some benefits to prepaid cards:

  • They’re good for traveling.
  • They promote mindful spending.
  • They prevent identity theft if your card is ever stolen.
  • They’re better for online purchases.
  • They don’t require a credit check.
  • They help consumers with low credit ratings.

Many—if not all—are reloadable, so you can add money to your prepaid debit card once the card runs low on funds. As you can see, there are quite a lot of pros for prepaid debit cards—enough to make them worth getting. However, if you do decide to get one, think about the following issues.

Discontinued cards

When I was a foreign exchange student in Germany, I opted for a prepaid credit/debit card through my bank. It gave me the option of reloading the card three times over the course of owning it. This seemed like a better option at the time than bringing my actual debit card in case it was lost or stolen. It also had the additional advantage of forcing me to budget my money carefully.

Before my trip, I sat down and budgeted. I had a small monthly allowance even after all my expenses were paid so I knew from that standpoint, purchasing the card was a good idea. And it didn’t cost me much—maybe $20 or $30 to buy the card plus the fees when I added more money. What I didn’t count on was my bank discontinuing the card three months into my stay, with two months left before heading back to the states.

Sudden changes to the contract

Another thing to consider before purchasing a prepaid card, is that the card company could change the terms of the contract on you and suddenly start charging fees when before, there weren’t any. You don’t want to be surprised to learn that you got an overdraft fee due to monthly card fees that you didn’t have before.

ATM fees

One of the pros of using prepaid cards online and when you travel is that they often don’t come with monthly fees. However, they do have ATM fees, and I paid a pretty penny each time I went to the ATM, not to mention what I paid for the dollar to euro exchange rate. Additionally, if you hit your limit on the card and go over the balance, you may get overdraft fees.

Sketchy fraud protection

Thankfully, in all the adventures I had with my little, blue, travel money card, I never had to deal with this eventuality. But some people have found that if their cards were stolen or lost, they had fewer options than they would have had with a more traditional credit or debit card. This relaxed fraud protection is precisely what makes prepaid card holders more at risk for identity theft. Many prepaid cards come with loose protection, making it easier for fraudsters to “skim” your user information from the card. And while many consumers believe that this only happens when using prepaid credit cards online, it’s actually more likely to happen in brick and mortar establishments. All it takes is a stolen receipt or two and a card number and voila, you’re now the proud owner of a jet ski, care of Amazon. Too bad someone else is having your vacation.

Good news on the horizon

Whew! Bet you thought we’d never get here and that I’d be telling you to cut up all your prepaid cards and go to Prepaid Cards Anonymous. Not so. The advantages of using prepaid cards still outweigh the cons of having one. The real problem is that you can get a false sense of security owning a card like this. By that I mean you almost feel like you don’t need to do much to look after a prepaid card like you would if you had a “regular” credit or debit card. But the fact is, it’s still money, and it requires the same amount of attention that your other monetary obligations do. What you need to successfully enjoy all the advantages of credit cards like these is to consider and do the following:

  • Get a second debit or credit card: If you use the prepaid card while traveling, it may be in your best interest to get a second, back-up card from a different vendor to carry with you. This step alone would have solved my issues in Europe. If your dad was like mine and told you to spread your money around in different suitcases, pockets, bags and pouches, just consider this the digital equivalent of that advice.
  • Plan your ATM trips ahead of time: If you get a card and intend to use it at an ATM, plan ahead. When I was in Germany, I calculated my budget and then withdrew the amount of cash I would need for the week. Just be careful about walking around too much with large amounts of cash on you.
  • Protect your prepaid card balance: You can prevent, or at least curb, the effects of prepaid credit card fraud by covering your PIN as you type it in. You should also check your balance online often to ensure that your information doesn’t get into the wrong hands.

Where do you get prepaid credit cards?

BankRate.com has provided a list of solid prepaid card companies. If you go to this BankRate link, you’ll see a table with information about each card. For example, you’ll see what kind of activation fee the prepaid card has, whether there are ATM fees for withdrawal and balance inquiries, the amount of monthly fees if there are some, and links to further information about each card company.

As for my adventure, I made it home from Europe, although it would have been fun to have been forced to stay!


This is a guest post by Buffy from Boise, ID. 

Prepaid Debit Cards: The Pros and Cons