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College Planning

Are prepaid debit cards a good choice for college students?

Maintaining good credit is an essential part of a responsible adulthood. Help your student understand how credit card payments work.

Credit cards come with a certain amount of financial risk that many freshman college students can't quite grasp. Maintaining good credit is an essential part of responsible adulthood, and yet it's hardly ever addressed. Your child might be able to calculate compound interest, but they probably don't fully understand how late payments, maxed out balances, and defaulting on debts can adversely affect their credit rating.

A prepaid debit card has no effect on a person's credit. A Visa, Mastercard, or American Express branded prepaid debit card can be loaded with money as needed, and used anywhere those cards are accepted. Once the current balance has been spent, the card won't work until it's reloaded. Prepaid cards allow you to send your student spending money when and if they need it. They can be helpful when figuring out how to pay for college expenses just like any traditional debit or credit card. They also have the potential to teach your student about budgeting and prioritizing their spending without exposing them to the risks associated with checking accounts and credit cards, and they allow parents to keep a watchful eye on their child's spending habits.

Prepaid cards are also popular options for individuals who cannot open a traditional checking account due to a poor record with a consumer reporting agency, but these cards are not without their drawbacks. Some prepaid cards come with an excessive fee structure attached that essentially penalizes people for using their own money. Most prepaid cards have small monthly fees, but some cards charge you a fee for adding money to the account, withdrawing money from an ATM, or even just checking your balance via an ATM. In extreme cases, simply using the card, paying bills online, not using the card, or receiving bill statements will land you a fee.

When shopping for a prepaid card, be sure to look for cards with minimal monthly fees, and free and easy options for deposits and withdrawals. Many prepaid cards even allow direct deposits from your employer, which is useful if your student plans to support themselves by getting a part-time job. Prepaid card shoppers should also be aware that most prepaid cards are NOT insured by the FDIC. Prepaid cards are usually not subject to other protections you get with a traditional checking account or credit card, so if your card is stolen, and fraudulent charges are made, you may have little or no recourse for reclaiming your money, and there may also be a fee for replacing your card. As with any financial agreement, it's important to read the fine print with any prepaid card offer.



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