The Difference Between Prepaid and Debit

Posted by: Michael S. | Jan 14,2008


Many might look at a prepaid credit card and think, “What’s the point?”  For most, the point of a credit card is the ability to pay for something with money you don’t have.  To do so you pay for the privilege in the form of fees and interest.  What, then, would be the point of using a prepaid credit card.  It seems sort of like a debit card in which you’re charged fees – i.e. more expensive than using debit.  

Right you are, to a point.  While it’s true that prepaid credit cards do cost fees and interest when compared to debit cards, which are generally dollar for dollar, a prepaid credit card can do things that a debit card cannot.  The most obvious thing is that even though the card is prepaid and you’re in effect spending your own money, you’re still buying money on credit.  This means that when you pay back your credit bill on time, it will be reported to credit bureaus. This is a good way o start establishing a credit rating if you have a limited credit history.  

In addition, there are instances in which a debit card will not be accepted, such as hotel or car reservations.  That said, getting a prepaid credit card doesn’t entirely make sense if you’ve already established a decent credit rating.  Prepaid credit cards are for people with a very limited credit history, such as students, or those in a tenuous employment situation.  If a husband or wife needs to start establishing a credit rating and cannot get a credit card with decent interest otherwise, a prepaid card is a good way to go.  So don’t write off prepaid credit cards right away and go for debit, as for many people prepaid cards have advantages.  

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