Prepaid cards can help you manage your money in several ways. From avoiding debt to monitoring transactions to budgeting apps, here are 7 ways a prepaid card can help you budget.
The landscape of prepaid debit cards is changing rapidly. While once the tool of choice for the unbanked as a way to avoid expensive check cashing stores, today many card holders have separate bank accounts. According to a study by the Pew Charitable Trust, today the “primary motivation for using prepaid cards is to gain control over their finances.”
There are several inherit features of all prepaid debit cards that can help you budget.
How Prepaid Debit Cards Can Help You Budget
1. No Debt
Prepaid cards do not extend credit. With some limited exceptions, most prepaid debit cards limit your spending to money already loaded onto the card. It’s impossible to go into debt with a prepaid card. Spending what you have and no more eliminates the possibility of interest payments.
As such, prepaid debit cards force financial discipline.
2. Track Spending
It’s easy to see how you are spending your money. Prepaid cards keep a log of all purchases, ATM withdrawals and other transactions on the card. This information is available online or on smartphone apps.
Some prepaid cards even categorize your spending (they also offer budgeting apps that we’ll get to below). Monitoring how you are spending your money can help you control spending. It can also enable to you to make changes during the month to avoid spending more than you make.
3. Real-time Alerts
Prepaid cards today can alert you when your balance is low. These alerts can come in the form of text messages, email, or alerts on smartphone apps. The alerts can in turn help you plan, particularly in the few days leading up to your next paycheck.
4. Low Fees
While the cost of prepaid cards varies significantly from one card to the next, the fees are coming down. In many cases they are lower than the fees of checking accounts. Further, prepaid cards help you avoid check-cashing and, as noted above, overdraft fees.
You can find cards with no activation or monthly fees with our comparison tool.
5. Multiple Cards
With prepaid cards, you are free to use multiple cards. Some prepaid cards, like the American Express Serve card, offer sub-accounts. Or you can apply for multiple cards from several different prepaid card companies.
Why would you want more than one prepaid card? While it may seem counterintuitive, having multiple cards can help you budget your money.
For example, you may have one primary card for your monthly bills, such as groceries, gas and rent. If spending too much eating out is wrecking your budget, you could use a second card just for restaurants. Load the card with the amount you’ve budgeting for eating out. Once the money is gone for the month, you know you’ve reached your limit.
6. No Overdrafts
The Consumer Financial Protection Bureau recently released data showing that banks collected over $11 billion in overdraft fees in a single year. Even a single overdraft fee can disrupt a consumer’s monthly budget. Prepaid cards help in two ways.
First, you cannot overdraw (most) prepaid cards. It’s not allowed. There are some cards that offer a small purchase cushion (typically $10), Otherwise, transactions will be denied if there is insufficient funds on the card to cover the purchase. Without an overdraft, prepaid cards help consumers avoid overdraft charges.
7. Budgeting Apps
Sseveral prepaid cards have introduced budgeting features. In some cases budgeting tools are available online. In other cases these tools are built into smartphone apps.
Here are three prepaid cards that currently offer budget and money management tools.
Netspend offers a budget tool with two ways to create a budget. First, you can use budget templates that the Netspend tool will guide you through. Second, you can create your own budget from scratch. It takes just a couple of minutes to select your budget categories and the amount for each category.
Once created, Netspend will categorize your purchases by category. It can also send you text alerts when you are about to go over your budget in any given category.
OnBudget is a prepaid card specifically designed for those that want to manage their money. For the first 30 days, OnBudget builds a budget for you based on your use of the card. At the end of 30 days, a budget is automatically created for you. From there, adjustments to the budget can be made for each category using a simple slider.
Finally, the Control MasterCard has created a unique budget tool for its cardholders. As you can see from the image above, selecting budget categories takes just a click of the mouse. For each category, you can set a budget amount. Transactions on the card are categorized by budget category automatically, and budget amounts can be changed at any time.