Is a prepaid debit card right for you?

For some people, debit cards and credit cards aren't a viable option. This is typically because of bad experiences in the past or even the inability to secure a credit or debit card. But a prepaid debit card--a card backed by a prepaid sum of cash--offers a unique alternative to those who've turned away from traditional cards.

Prepaid cards are different than debit cards and credit cards in a number of ways, but they offer many of the same amenities. Most significantly, prepaid cards can be set up for direct deposit, giving those that can't get a checking account more options for how to handle their money. Some employers even use prepaid cards as a way to pay employees who don't have a bank account.

But there are a number of things to consider before purchasing a prepaid card. Here are some of the pros and cons of the prepaid debit card.

Pros

• They're available to anyone. This is a big plus for anyone who can't secure a credit or debit card because of bad credit or past bank misdeeds. The prepaid card is a way that anyone can get some of the benefits of plastic, such as the ability to quickly make online purchases. .

• They can protect your other accounts. The possibility of credit and debit card fraud is a cause for concern, particularly for anyone who's been through it before. Though credit and debit cards offer significant protections from theft and fraud, it's still a hassle when your bank or credit account is compromised by criminal activity. By loading a prepaid card with a set amount, there's no concern a thief is going to gain access to either your checking or credit accounts.

• They can help keep you on budget. A lot of folks who have battled debt will prefer prepaid cards because it allows them to better manage their spending. They can load the cards with a preset amount and understand that once they hit that limit, it's time to stop. No worries about spending too much and falling back into a torturous debt cycle.

Cons

• They have fewer protections than credit and debit cards. This is important, because in many ways prepaid cards are not as safe as credit or debit cards. Federal laws protect you from loss, theft and fraudulent charges when you use credit or debit cards, but those laws are a bit looser when it comes to prepaid cards. Read the fine print before you purchase, even if the prepaid card carries the Visa or MasterCard logo.

• They can be expensive. Prepaid cards can be costly compared to other forms of plastic. There's sometimes an activation fee, though with a little comparison shopping, you can find cards with free activation. But many carry a monthly fee, and may have additional fees tied to the number of ATM withdrawals or PIN purchases that you make. Some even have fees for adding cash or closing your account. Again, it pays to shop and compare before buying a card.

• They won't improve your credit score. For those who are repairing their credit score, use of a prepaid card won't help. Since it isn't a credit card, prepaid cards aren't reported to the three credit bureaus.

In short, it's best to remember that prepaid cards are just one more tool for managing your finances. Like a checking account or a credit card, it's a product that deserves scrutiny and understanding before you choose it. Do you homework and then choose the tool that's right for you and your situation.

• Get started saving by finding the best savings account now
• See all articles