Consumers Turn to Prepaid ATM Cards as Credit Alternative

As many Americans suffer from bad credit, under water mortgages, and lost retirement savings, many are place blame in the laps of big banks and lenders.  These individuals express resentment towards the banking system in general and hold banks responsible for the many credit and economic woes of recent years.  In an effort to avoid dealing directly with banks, several individuals are turning to reloadable prepaid “debit” cards as their vehicle of payment rather than regular credit cards or checks.

To hold a prepaid credit card, an individual doe not necessarily need a bank account at all as they would in order to qualify for or to pay monthly bills for a usual credit card.  Instead, individuals may put cash directly onto the card, or have their employers direct deposit funds onto their card straight from their paychecks in any proportion that they choose.

Research companies estimated that 8.7 billion dollars were loaded onto loadable cards in the US in 2008 and that number is predicted to grow to 118.5 billion in 2012, with more and more individuals opting into this new form of payment either by choice or necessity.  Without good credit, some may have no choice but to use prepaid cards as they will not qualify for regular lines of credit.

While prepaid cards may be a good alternative to those who have a past history of budgeting issues as well as young users and those learning card holder responsibilities, they aren’t for everyone.  While Visa and MasterCard both offer prepaid cards as an option to their customers and have been doing so for quite some time, the proportion of their total business that comes from prepaid cards remains a minimal.  Western Union, GreenDot, and Net Pay are also key players in the prepaid card industry.

Consumers should bear in mind that prepaid debit cards are not fee free.  In fact, most users will pay a premium of about $150-$300 annually to use the card.  Additionally, consumers should note that not all retailers are accepting some of the prepaid cards on the market.  This fact could make using these cards to broadly budget for all purposes a bit tricky.  Also remember that prepaid credit cards are not a cure all to your credit score.  If you’ve had issues with your credit report for any reason including budgeting issues, seek the help of credit repair experts.