Pre-Paid Debit Cards: A Possible Solution to Overspending?
December 30, 2009 4 Comments
Before I started my debt recovery process, and even a few months after, I had a big problem. Actually a huge problem.
I was horrible at keeping track of how much money I had spent.
As I mentioned in this post, for the 7 months before I got “really” serious about finances I had accumulated $836 in overdraft fees. I just couldn’t keep my money straight or know where it was going.
I ran across Pre-Paid Debit Cards recently, and thought they may be a decent solution. So let me just give you a run down of how these cards work. It is pretty simple, you can choose your own debit card (I personally love the Breast Cancer card because my mom had breast cancer, and they are donating a portion of the proceeds to breast cancer research). You then put your own money on it (if you do this online, it is free). Then you use the card like you would a debit card from the bank. You are given a PIN, so you can use to it get cash. And you can also do Visa signature purchases. Essentially anything that a “normal” debit card does.
The benefit though is that you don’t have overdraft fees. You can only spend how much money you have. So remember the scenario above where I had $836 in overdraft fees in 7 months? Yeah, that wouldn’t have happened if I had been using a pre-paid debit card.
Now, there are a few draw backs compared to conventional debit cards. And of course, these “draw backs” are because you can’t get something for nothing, right?
These babies aren’t free. And that might be a deterant for some straight off the bat. But let me go through the basic fees associated with pre-paid debit cards.
For instance, to issue the card there is a $9.95 fee. This is a one-time fee, so that is understandable.
Also there are two different account levels. You can “Pay As You Go” which means you pay for each transaction that you make. A PIN-based transaction costs $2.00 per transaction; a Signature based transaction is $1.00 per transaction.
The better deal (I think) is the “Fee Advantage” program where you pay $9.95/month for unlimited PIN and Signature transactions.
So essentially you’ll pay a $9.95/month fee to ensure unlimited transactions and to make sure that you don’t go overdraft. Sure you’re paying $9.95/month – but if you go overdraft on your checking account just once on a normal card you’re paying $25-35 for that one overdraft. And if you’re like me it usually isn’t one overdraft it is SEVERAL. (*ahem* …$836… *sigh*)
Obviously, a pre-paid debit card isn’t for everyone. But, if you have a limited budget for spending and want to make sure that you don’t go over, then this should definitely be a possibility. If I had used a card like this for my transactions a few years ago, sure, I would have spent $10/month – HOWEVER – I also wouldn’t have gone overdraft and gotten so many fees.
In addition, it may be a way to curb certain spending habits. For instance, if your weakness is buying clothes then you might consider putting your clothes budget for the month onto a pre-paid debit card. Then you’ll be sure not to overspend. Or perhaps if (like me) buying food every month is your weakness, you can put your monthly food budget on the card. In essence, you can make a pre-paid debit card be a lot like an envelope system backed with the security of Visa.
I think at this point in my finances, having a pre-paid debit card isn’t exactly what I need to keep me on financial track anymore. However, when I first started this blog and was spending money like I didn’t have a care in the world, well, a pre-paid debit card would have saved me A LOT of money. It would have been a good way to begin budgeting myself and my money.