Most people are familiar with traditional debit cards. They come with almost every traditional checking account, and they enable you to get cash from ATMs and make purchases from merchants that accept credit cards.
Debit cards that are connected to your checking account automatically withdraw cash from your account every time the card is used with a purchase. It’s convenient, and unlike a credit card, you aren’t borrowing money and you won’t have to pay a financing fee. However, there’s one big problem with debit cards, and it’s a problem that banks love.
Debit cards are notorious for overdraft fees. Since debit cards take cash straight from your checking account, all it takes is poor budgeting or an erroneous charge to rack up expensive penalty fees for spending more money than you actually have in your bank account. When it happens, you could be looking at hundreds of dollars of fees, depending on your bank’s overdraft policy.
One of the best solutions for avoiding overdraft fees, and also staying within your budget, is to use a prepaid debit card. Prepaid debit cards only allow you to spend the amount of cash you’ve loaded on it. They can also be auto-loaded each month with a preset amount.
With preloaded amounts, you’ll never go over budget, because you technically can’t. You’ll also avoid penalty fees from banks, because they don’t exist with prepaid debit cards. Prepaid debit cards lend themselves to being the perfect budget tool for those who have difficulty with overspending.
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