A Students Guide To A Prepaid Credit Card

Believe it or not, but there was once a time when students were able to get multiple credit cards whilst studying at university. The idea of issuing a credit card to someone without a regular income of his own may seem outlandish, but there was a certain rational behind it: Banks considered offering credit cards to students as a good long-term move, as they hoped to hook the student in as a potential future customer. Students, on the other hand, were naturally quite enamoured with the idea, as it allowed them to fund an agreeable lifestyle without having to worry about "trivial" things like paying the bills. In an ideal world, students would simply have paid off the debts raked up this way by getting a great job after college. But of course, things didn't quite work out that way. Instead, many of them remained unemployed, which left them in financial problems for decades. Today, partly due to the tough economic conditions and partly due to increasing debts that students have to pay, credit cards have become quite hard for a student to obtain.

Prepaid cards: A first step towards consolidation

The introduction of prepaid credit cards specifically aimed at students was a first and important step intended to keep them spending too much money. The benefits of a prepaid credit card are numerous. Firstly, there are no longer any nasty surprises when a credit card bill comes in. After all, there can be no debt, because although called a prepaid credit card and despite offering almost all of of its benefits, it is actually more of a debit card. Strictly speaking, the bank isn't lending the student any money, so no credit card checks need to be made. Rather, the owner loads a particular amount into the card, which he or she can then spend at a retail store or when shopping online. This is ideal for students, as their credit score is kept intact and their parents can put money on the card to help them financially when they are away from home. Even more importantly, they can restrict this support to exactly the amount they would like them to have.

Furthermore, a prepaid credit card teaches young people about money. While a credit card creates an illusion of a constantly replenishing source of cash, a prepaid card requires students to budget, as once the money has run out they are on their own. The student gets to use the card online to make purchases and doesn't have to risk taking large amounts of cash with them.

The fees of a prepaid card: Not as bad as you may think

Admittedly, there is a small downside to a prepaid card as well: the fees associated with it. Because the bank isn't making any money on the credit they would normally charge for, they have to make up for it in fees. Some banks may charge for using the card abroad, some may charge money if you lose the prepaid credit card, others may charge an initial administration fee. However, one should never forget that credit cards are by no means equal, either, and that many holders of a regular credit card are actually switching to a different one when travelling. In this regard, a prepaid card is by no means worse than a credit card by default. A recurring fee also has the additional benefit of telling you precisely at the end of each month how much you're paying for your card – compared to a credit card, which may cause wildly fluctuating interest payments.

And besides, these fees may are a small price to pay for students and their parents for knowing that they are not running up huge credit card bills. Regrettably, many students already start their lives heavily in debt now that they have to pay hefty tuition fees as well as living expenses. To add big credit card bills to the debt would be crippling and would take years to pay off. Another good thing about a prepaid credit card is that the card owner is able to check their balance at any point at a bank, post office or payment point. This gives great peace of mind to know exactly what is coming in and what is going out. Employers can also pay students straight onto the card without having to mess about with cheques.

The golden days of multiple credit cards may be over. That may be a good thing: A prepaid credit card will provide a student with the benefits of a credit or debit card but no chance of getting into debt.

This article was written in association with Tuxedo, a leader in the field of prepaid solutions.

Gavin Wittaker has written about finance-related topics for the past ten years. His main ambition lies in explaining the impact of complex financial developments in layman's terms and describing how they may affect the public at large. To Gavin, there could hardly be more exciting topics than analysing payment options in the 21st century, digital commerce and foreign exchange – and yet, you may occasionally find him listening to the Black Keys or reading the latest novel by Stieg Larsson. The image is licensed from PhotoDune.net.