Should I get a pre paid debit card?

A pre paid card can be an ideal solution if you have no bank account or need to open a new account because of a debt problem. However they come with a price attached.

Pre paid debit cards have been available for the last 4-5 years. They can be used in exactly the same way as any normal debt card, for example paying for everyday items such as shopping at the supermarket or petrol. They can also be used for making purchases on the internet.

The key difference between a pre paid card and a normal debt card is that the card can only be used if it cash has previously been credited to it.

In this way pre paid cards work similarly to pre paid mobile phones. The pre paid card can only be used if credit is available. Once the credit runs out, the card will stop working until more funds are credited to the card’s account.

Why would I want a pre paid debit card?

The main reason to get a pre paid debit card is if you do not have access to a bank account or are unable to get a standard debit card with your bank because of a poor credit rating.

Very often if you are trying to resolve a personal debt problem, one of the things you will need to do is change your personal bank account. This is to ensure that the funds you have remain under your control and cannot be taken by your bank if you have other debts with it.

The issue is that a debt problem will generally come hand in hand with a poor credit rating. This will mean you can only open a simple bank account and on opening, will not be issued with a debt card.

When a debit card is not issued with a new bank account, a pre paid card is often the ideal solution because these cards are available even if your credit rating is poor.

Pre Paid comes with a cost

A pre paid card provides convenience when shopping and provides the ability to pay on the internet, particularly if you have no access to any other type of payment card. However if you are thinking of getting a pre paid card, you must make sure that you are fully aware of the costs.

Most pre paid card accounts have a joining fee of around £10. An annual management fee may also be charged of an additional £10. There will also be a charge each time cash is loaded onto the card (normally £1-£2), and cash withdrawals at cash point machines are also often charged for.

If you are struggling with debt and apply for a pre paid card because you are not given a debit card with your bank account, you must remember to allow for these charges in your monthly expenditure budget.

Is there an alternative to pre paid?

If you are looking to open a new bank account but know that your credit rating is poor, very often you will have to open a simple card cash account with no credit facilities or debit card. As such if you want a debit card, the pre paid route will be your only option.

Some banks are now starting to offer card cash accounts with a debt card even to people with poor credit ratings. The Co-Op Cash Minder account is one of these. It is therefore always worth considering this as an option.

However, card cash accounts that provide a debt card are still largely unavailable. A pre paid card is therefore the only option for many people. As such the costs associated with opening a pre paid card account and using it need to be clearly understood before going ahead.