A stack of credit cards on top of a pile of hundred dollar bills.

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When we did a study on credit and debit card market shares, two pieces of information stood out. The first is that there were a staggering 6.96 billion credit and debit cards in the United States in 2018.

The second is that 71.7% of those, a total of 4.99 billion, were prepaid debit cards. It's such a huge number that it's almost hard to believe.

Why do so many consumers use prepaid debit cards? The answer lies in the mix of convenience and control that other payment card options don't provide.

The appeal of prepaid debit cards

One obvious explanation for the high number of prepaid debit cards is they're easy to get. If you want a prepaid card, you can likely find one and load it with money at a nearby grocery store or department store. There are also plenty of prepaid cards you can get online.

Unlike opening a bank account or credit card, you don't need to go through an application process or provide personal information. That makes prepaid debit cards convenient options for unbanked consumers.

However, that's not the only or even the most common reason consumers opt for prepaid debit cards. A report by Pew Research found that the top reasons were:

  • Shop online
  • To avoid credit card debt
  • To avoid overspending
  • To avoid overdraft fees

The ease of getting prepaid cards is certainly a plus. But most cardholders don't choose this type of card because of any trouble getting a bank account or a credit card. They like prepaid cards because of how they work. Cardholders can only use the money they load to their cards, which helps them control spending.

The majority of consumers who use prepaid cards previously had or still have checking accounts, credit cards, or both. Prepaid cards help them avoid the risks of overspending. There are no overdraft fees like there are with bank accounts, and there's no risk of going into debt.

Are prepaid cards a good way to control spending?

If overspending is a problem for you, a prepaid debit card might seem like a smart solution.

A prepaid card can help you control your spending, but there are a few drawbacks to keep in mind:

  • Prepaid debit cards charge fees. Fees vary depending on the card you choose. Some just charge a fee to reload money, while others also charge more, such as monthly maintenance fees and purchase fees.
  • Paying with a prepaid card won't improve your credit score. To do that, you'd need to use a credit card at least once per month and pay the bill on time.
  • The money you load to your prepaid debit card most likely won't earn any interest, which it would in a bank account.
  • Prepaid cards rarely offer rewards on your spending, which you could get with cash back credit cards.

To be fair, those drawbacks could be a small price to pay if a prepaid card helps you save money. It's just wise to consider all your options.

For example, you could connect a money management app, such as Mint, to your financial accounts. This would automatically track your purchases against a budget you set. That way you can still avoid overspending and also get the benefits of paying by credit card.

The most popular type of payment card

The numbers don't lie. Prepaid debit cards are extremely popular with consumers. They do have their benefits when it comes to reducing spending, but there are also more advantageous payment options out there. In the long run, you're better off keeping your money in a bank account and paying for purchases with credit cards to build your credit.