Prepaid cards not so good for college students
As students head back to college campuses in the next couple of weeks, they're going to be met by credit card companies hawking plastic.
With credit card reform passed this year, credit cards have gotten a pretty bad reputation in some circles. College kids are getting warnings from everybody to stay away from the cards.
So now marketers are pushing prepaid cards. Parents put money on the cards that their kids then use. No more racking up debt. At least we hope.
But as my colleague Eileen Ambrose writes in a story in The Sun today, debit cards might not be that great of an alternative either. The cards come with fees, some which are hidden, she said.
Ambrose writes that a checking account with a debit card tied to it might be a better option. And when students learn to handle that responsibly over time, they can graduate to a credit card.
Categories: Budgeting, College/Financial aid, Credit cards
Comments
Used correctly, yes, a debit card is cheaper than a prepaid card. However, if the student overdraws the account even once or twice in a month (a near certainty), the overdraft fees dwarf any fees the prepaid card charges.
There is a lot of misinformation out there about prepaid. Given the way kids handle money, prepaid is probably a cheaper option for them. There is an incredible variety of cards out there with wildly varying fee structures.
Walmart, for instance, just slashed it prices to purchase and reload the cards.
Again, debit is usually a better option for people who have bank accounts. But if you don't or you're even a little irresponsible when it comes to knowing your account balance, prepaid might make more sense.
Posted by: DJ Murphy | August 25, 2009 11:54 AM
I agree with DJ Murphy. What's more - a prepaid card can be an excellent budgeting tool by restricting access to one's money. A debit card can conceivably allow you to blow through everything you have in your checking account.
As with everything else people just need to shop around to find a good deal.
Posted by: ESR | August 26, 2009 4:20 AM
There is no way to recover any overdraws so when the card is processed with the local merchant it is rejected without actual money in the account. This type of card does not help the student build a credit record because it is not actual credit where you are borrowing and paying back to a lending institution.
Posted by: Mary Ann | September 11, 2009 6:05 AM
Very cute :-)))),
Posted by: Qiraswen | October 12, 2009 8:03 AM