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Credit vs. Prepaid Debit Cards

Paying with plastic can be very convenient, whether that piece of plastic is a traditional credit card or a prepaid debit card. Both of these popular payment types have their specific advantages and disadvantages, and it is important to examine your options carefully before deciding which one to pull out of your wallet.

Avoid Interest Charges

If your goal is to avoid interest charges, a prepaid debit card is definitely the way to go. While you incur no interest charges if you pay your credit card balance in full, if you pay anything less than the total amount due you begin to rack up interest charges immediately. If you pay with a prepaid debit card you avoid those interest charges.

Control Your Spending

Prepaid debit cards also help you control your spending, because you are limited by the amount of money on the card. If you have had problems controlling your credit card spending in the past, a prepaid credit card can be a good way to train yourself to live within your means. Each prepaid debit card contains a specific amount of money, and once you reach that limit, you cannot use the card again until you add extra money to it.

Purchase Protection

If you pay with a credit card and the product you buy turns out to be defective, you can dispute the charge with the issuer. If you pay with a prepaid debit card you might not have the same protection. Consumer protection is an important benefit of paying with a credit card, so consider using this method if you have even the slightest question about the quality of the product you are buying.

Protection Against Loss

If you lose your prepaid debit card, it could be the same as losing cash, and a thief finding may be able to spend the remaining money on the card. The protections offered on prepaid debit cards vary from issuer to issuer, so it is important to check the terms and conditions of your own card carefully. It is also important to guard your prepaid card just as closely as you would your cash.

You also need to guard your credit cards, of course, but your liability is limited if you do lose the card or it is stolen. As long as you report the loss or theft promptly, your liability for fraudulent charges is limited to $50, and many banks waive that charge as a courtesy to their customers.