Q: What is the difference between a secured credit card and a prepaid debt card?

A: If you aren’t eligible for an unsecured credit card, you still have options for carrying plastic in your wallet. Secured credit cards and prepaid debit cards are fairly easy to get but both cards have their benefits and drawbacks. One card can help you build or repair your credit, while another makes it easier to carry cash when you don’t have access to a bank account. Both of these cards require you to pay for the balance on the card, however. Here’s a close look at the key differences between a secured credit card and prepaid debit card:

Pros and Cons of Secured Credit Cards

Secured credit cards can help you build up credit and also be used to teach young cardholders how to be responsible with their credit card use. You will need to pay for these cards with a security deposit which acts as your credit limit. As you make purchases and pay off your “debt”, you’ll start to build some credit history.

Some of the key benefits of having secured credit cards include:

• Gives you a chance to rebuild and repair your credit
• Appear and look like a regular credit card, so nobody will know that the line of credit you are using is actually your own money
• Limits your ability to spend money that you don’t have
• Option to increase your credit limit when you demonstrate responsibility with on-time payments
• Can be converted to an unsecured credit card when you certain eligibility requirements

Some of the drawbacks of secured credit cards include:

• Pay interest on your own money because your balance will be accumulating interest
• Not re-loadable, so your initial deposit will serve as your credit limit throughout the agreement
• May make you appear to have a credit dependency on your credit report
• Activation fees and annual fees may be applied
• Late payment charges can be fairly high

Pros and Cons of Prepaid Debit Cards

Prepaid debit cards work like regular debit cards, except there is no application involved. You simply load these cards with a certain amount of cash, much like a gift card. You won’t incur any type of interest charges and can even use it to withdraw cash from an ATM machine. However, you will still incur maintenance fees, ATM fees and other charges when using this type of card.

Some of the key benefits of using some prepaid credit cards may include:

• Convenient alternative to carrying cash, checks or other types of debit and credit cards
• No credit check required
• No existing bank account required, and you can purchase it at a store to make purchases immediately
• No overdraft charges to worry about

Some of the drawbacks of using some prepaid debit cards may include:

• Won’t help you build your credit history
• Can acquire fees every time you use the card
• Inactivity fees may apply