According to Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, we live in a credit-dominated society. "Without a checking or savings account," she says, "it's difficult to cash payroll, Social Security and unemployment checks; you need a credit or debit card to shop online, book a flight or rent a car; and you may be forced to carry large amounts of cash to pay your bills."
One increasingly common money management tool for people in this situation is prepaid cards. These cards look and work much like regular debit cards except that instead of funding them through a checking or savings account, you load money on the card by cash, check, funds transfer or direct deposit by an employer or government entity.
Common prepaid card features include:
Common types of prepaid cards include:
Prepaid cards may come with fees and restrictions, so it's important to read the card's terms and conditions carefully and to shop around for the best deals. Good comparison sites include Bankrate.com and Creditcards.com.
Here are a few questions to ask when comparing cards:
Some people opt for prepaid cards because they can't qualify for credit cards due to poor or insufficient credit history. Unlike secured credit cards, which similarly require you to deposit money into an account to cover transactions, prepaid card activities typically aren't reported to the major credit bureaus, so using them will not improve your credit score.
To learn more about how prepaid cards work, you can order the free Prepaid Card Basics brochure at Practical Money Skills for Life, a free personal financial management program run by my employer, Visa Inc. And, for a more detailed discussion on gift cards, read my previous blog, Get the Most Out of Your Gift Cards.
Bottom line: Always make sure you fully understand the terms and conditions of any financial product or account before signing up.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney