I read an interesting article in the Wall Street Journal Online (WSJ) about prepaid debit cards the other day. It’s basically a debit card that isn’t linked to a traditional bank account. Here’s a quick run down of some of the advantages and disadvantages:

Advantages:

It’s convenient. Much like a debit card or credit card, you don’t have to worry about using cash. And the good thing is, most any merchant takes it, so you don’t have to worry about getting denied.

You can’t incur debt. Because you pre-pay, you can’t use more than you put on the card. The problem with credit cards is that many people charge items they can’t afford, and only make the minimum payment.

It’s literally plastic cash.

Disadvantages:

Because it’s plastic cash, using it frequently doesn’t have any effect on your credit score, which can be a problem when you need a loan. Upon graduation, you may be ready to take out a loan for higher education, a car or even an apartment. Having no credit history can hinder your chances of receiving a low interest loan significantly. Click here to read about building your credit.

Liability for fraudulent transactions. Credit cards are a little more lenient than these new prepaid debit cards. With a credit card, you are liable for no more than $50, regardless of when you report the fraud. With the new plastic, you’re liable for at least $50 up to 60 days, and anything after that you can liable for up to as much as $500. Eventually, you’re liable for it all. This makes sense, considering the responsibility is on the cardholder to report fraud.

Your best bet is probably a cocktail of all of the above. You need a credit card, and probably already have a debit card. A prepaid card might be a good idea for your weekend expenditures. Set aside how much you want to spend per month, and put just that amount on your card. When you run out, well, you can always just chill on the couch.

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