If you’re looking for a new card to help manage your spending, it’s important to do your research on all of your options. One option you might come across is a prepaid card. But what is the difference between a prepaid card over a traditional credit card? What are the benefits of a prepaid card? Read on to learn more.

Prepaid card vs. traditional credit card

A prepaid card is a financial tool that allows consumers to set their spending limit upfront. You put down money that is loaded onto a prepaid card and you can use it as a secure form of payment.

Using a prepaid card, you can only use the money that you load onto the card. Using a credit card, you can spend up to the credit limit but also end up in debt. A prepaid card works similarly to a debit card but it’s not associated with a bank or a checking account. On top of that, prepaid cards don’t help build your credit but it also doesn’t hurt your credit either.

Benefits of prepaid cards over traditional credit cards

There are a number of benefits that prepaid cards have that consumers can use to their advantage. Check out these four benefits that prepaid cards have compared to traditional credit cards.

1. You can avoid debt

Prepaid cards can help consumers stay in budget and only spend money that they actually have. Credit cards can easily lead to debt, which can take years to pay off and lead to a vicious cycle. On top of that, the interest rates on credit cards are high and add to the total cost of credit card debt. Using prepaid cards, you can avoid credit card debt.

2. You get protections without the temptation to spend

If you get a prepaid card, you also get protections against fraud just like if you were to have a credit card. Though credit card companies are well-known for their fraud protection programs, you can also get some protections with a prepaid card but without the temptation to spend more and end up in debt. According to the Consumer Financial Protection Bureau Consumer Financial Protection Bureau

“You have protections in case of an error or an unauthorized transaction if you have a prepaid card that you have successfully registered. For example, you generally can’t be held responsible for unauthorized charges or other errors on these cards, if you report them immediately. In addition, the card provider is generally required by federal law to credit the disputed amount to your account while investigating the problem if the investigation will take longer than 10 business days.”

So the good news is that you don’t have to compromise safety against fraudulent activity with a prepaid card.

3. Your credit score doesn’t matter

If your credit isn’t so great, a prepaid card is a great option as there are no specific credit requirements for approval. Credit cards, on the other hand, evaluate your credit score and credit history to determine if you are approved or not. In this way, prepaid cards are more accessible. While prepaid cards can’t help you build your credit, they can’t hurt your credit either so there is a trade-off.

4. A way to practice budgeting

Prepaid cards can also be useful as a way to practice budgeting. Money management is all about living within your means and spending only a certain amount. You can load only what you can afford and manage your spending through the prepaid card. Having a prepaid card that is reloadable ensures that you stay within what you can afford and don’t dive into debt.

Final word

Prepaid cards are a good option because of these four reasons and can be useful for consumers, especially those who don’t qualify for traditional credit cards or those who are working their way out of credit card debt.

If getting a prepaid card, be sure to look at the terms and conditions of the card and see if there are any fees involved. Look into how you can successfully add funds to the card to make sure you're ready to go. Once you understand all of the important details, a prepaid card can be a good addition to your wallet.