Prepaid Debit Cards: Are They Just for the Underbanked?

Prepaid debit cards have grown in popularity over the past few years, especially as more and more Americans feel the sting of the recession. In fact, prepaid debit card usage has climbed by 20 percent since 2011, and it is expected to increase even more by the end of 2013.

While people with traditional bank accounts may have regarded prepaid debit cards as a product reserved for consumers with bad credit and the underbanked (people who do not use traditional financial services such as checking accounts), experts agree that prepaid debit cards are ideal for the "already banked" as well.

Some of the biggest names in banking are starting to tap this largely untapped segment of the population. But what's the point if you already have a debit or credit card with your financial institution?

Prepaid Debit Cards Are Valuable for Everyone

One of the many advantages of prepaid cards over debit and credit cards is they don't allow consumers to rack up thousands of dollars of debt. A prepaid card operates just like a bank account. The only funds available are those that are already on the card so the risk of overspending is virtually eliminated. A prepaid debit card is essentially a consumer's solution to the growing debt problem in the United States.

More Advantages of Prepaid Debit Cards

Prepaid cards offer several other benefits that go beyond just preventing you from falling deeper into debt. Advantages compared to traditional debit and credit cards include:

• Prepaid cards make it easy and safe to pay for purchases in-store and online, pay bills, withdraw cash, and receive direct deposit of wages.

• Protecting you while you're on the road. Your prepaid debit card isn't linked to your bank account, so you don't have to worry about someone stealing your card and draining your account-or charging thousands of dollars in your name.

• Teaching teens how to spend responsibly before they are given access to their own traditional bank account and credit card. Since a prepaid debit card is not linked to a bank account, they can't overspend and learn how to better manage their money.

• Protecting college students while at school. Prepaid campus cards allow you to directly deposit your college student's funds and have financial aid automatically deposited onto their card. This prevents your college student from having to walk around with large sums of cash or manage a large amount of money in a bank account.

More "already banked" consumers will continue to switch to prepaid debit cards to avoid excessive debt, curb spending, and reduce the amount of money they lose in fees each month. Since the average consumer pays over 15 percent on credit card interest, avoiding the use of credit cards altogether can significantly reduce their credit burden and even improve their credit score as they pay down debts and spend money smarter.

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