Spending Too Much? Tricks to Control Your Budget
If you’re trying to get a grip on your personal finances, secured credit cards and prepaid debit cards can be two important tools. They serve very different purposes, however, so it’s important to know the pros and cons of each.
Secured Credit Cards
If you need to repair bad credit or establish credit for the first time, a secured credit card can be a good option—and it may be your only option.
To get a secured credit card, you pay a refundable security deposit to the card issuer—sort of like the security deposit renters pay to a landlord. If you fail to pay your credit card bill, the card issuer will use your deposit to do so. In most cases, the credit limit on a secured credit card is the same as the amount of your deposit, although some card issuers will give you a little more wiggle room.
The benefit to you is that if you consistently pay your bills on time, you should see improvement in your credit rating, or FICO score, within a few months to a year. Just make sure the secured card you’re considering reports to the major credit bureaus—Experian, TransUnion, or Experian. If not, there’s really no point to getting a secured card.
Some cards also offer rewards, and will automatically upgrade you to an unsecured account when you prove yourself credit worthy.
Depending on your current credit history, income, and bank account status, some cards may be off limits. Don’t give up, however; some cards are available without a credit check to just about anyone willing to pay the $35 annual fee.
Prepaid Debit Cards
Also known as pay-as-you-go cards, prepaid debit cards can a good choice for people who don’t have a bank account (roughly 11,000,000 Americans), people who want to stick to a strict budget, and families with teenagers.
Say you want to limit your monthly spending to $1,500. You can load your prepaid debit card with that amount at the beginning of each month, and use it to pay for everything, either with the card directly or through its mobile app.
You can use prepaid cards in stores that accept payments from the card issuer’s network (like American Express, Mastercard, or Visa). You can also make ATM withdrawals and even pay bills online.
Some cards issue checks, while others let you or transfer money to others (often through a third-party mobile app like Venmo or Ingo). You can even arrange for direct deposits from your employer if you want to.
The trade-off for all this convenience? In general, prepaid debit cards rack up more fees than regular credit cards or debit cards. Some have monthly fees, some charge a fee every time you load them with cash, and some charge fairly steep fees for out-of-network ATM withdrawals. Also, you can’t earn interest on your balance, and using prepaid cards won’t help you repair or establish a credit history.
On the plus side, you’ll never have to pay an overdraft fee, because you can’t exceed the amount loaded in your card. And you can’t be socked with high interest charges, because you’re not buying with credit.
Prepaid debit cards offer other conveniences, too. Some cards let you link several cards to one master account—a nice way for parents to distribute allowances and other payments to their children. Some let you make online check deposits through their mobile apps. And many offer purchase and fraud protections, just like regular credit cards. A few even offer cash back rewards for every dollar spent (be wary of higher fees for these types of “reward” cards, however).