Can You Pay Bills with a Prepaid Card?
Similar to debit cards, prepaid cards can be a great way to manage your expenses and spending habits without the danger of accumulating credit card debt. Basically, you pick up a prepaid card at a grocery store, pharmacy, or anywhere else they are sold and load the card with a specific amount of money and spend as you normally would. When these funds are depleted, you can reload cash to your card for further use. Read on for more information about prepaid cards, including when and how you can use them, points of consideration, and more.
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Can You Use a Prepaid Card to Pay Bills?
The short answer is: yes, you can generally pay most bills with a prepaid card.
That said, there may be some limitations that companies have on which types of cards they accept. Prepaid cards usually belong to one of four major card processors: Visa, Mastercard, American Express, or Discover. There are plenty of recommended prepaid cards on the market in Canada, but where you can use them depends on the vendor where you’re making your purchase and the cards they typically accept.
Overall, a prepaid card works for most bills and payments exactly the way a debit or credit card would. Assuming that your prepaid card’s processor is accepted by the company you need to pay, you can proceed with making payments however they are accepted (i.e. online, over the phone, or via mail).
What Bills Can Be Paid with a Prepaid Card
You can pay most of your bills and expenses with a prepaid card, especially if they are one-time payments to a vendor that accepts your card’s processor.
A few bills you might pay with a prepaid card include:
Your card will come with its own online account, so viewing and managing your balance is as easy as it would be to check a credit or debit card account. It’s important to check your balance regularly to ensure you have the money available to cover all bills and expenses, especially when it comes to the categories listed below.
Basically, if you’re shopping and try to pay via a depleted prepaid card, you can simply reload cash onto it in order to proceed with your purchase. If, however, your prepaid card is linked to a billing or credit account for automatic payments and does not have enough cash, this could result in debt, late fees, and other penalties.
While you can technically pay recurring bills with a prepaid card, it is not advisable. It can be all too easy to miss monthly payments, such as for your cellphone bill, with a prepaid card that has run out of funds. In these cases, you may face late fees or penalties. Of course, if you are meticulous about staying on top of your card balance and reloading it with cash as needed, then making monthly or recurring payments with your prepaid card is certainly an option. If you plan to use your card for recurring payments, it’s a good idea to check your account balance at least every few weeks to ensure you have enough to cover your bills.
Credit Card Bills
Like recurring bills, credit card payments may also be made with a prepaid card. Rather than linking your checking account to your credit card portal (if you make online payments), you might simply enter your prepaid card information. The credit card company would then pull from your prepaid card to pay your expenses rather than your bank.
If you have your credit card payments set to automatic, it’s extremely important to make sure you have the funds on your prepaid card to avoid credit card late fees and debt. If you’re paying bills with a prepaid card, consider switching from automatic to manual payments, and set a reminder on your calendar to check your prepaid card balance.
You can also pay off credit card debt with a prepaid card by connecting your prepaid card to your credit card account. Rather than pulling directly from your bank account, you can use the amount you’ve loaded on your prepaid card for debt repayment. Bear in mind that paying off debt this way won’t result in any special advantages, nor is it any better or worse than using your bank account.
Similar to paying credit card bills, you may also connect your prepaid card information to your portal for student loan repayment (or any other lending account). Rather than saving a routing number and account number to your personal information for payment, submit your prepaid card details instead. Every time you make a payment, it will be drawn from the amount on your prepaid card.
How to Pay Your Bills with a Prepaid Card
Paying your bills with a prepaid card is usually straightforward. While it’s unlikely that you pay all of your bills in one fell swoop, or that all of your payment processes look exactly the same, you can generally rely on the following steps for payment:
- Log in to the portal through which you’d like to pay a bill (loan portal, credit card, etc.)
- Enter your prepaid card number (and save it for future payments, if desired)
- Proceed with bill payment
This process assumes that you will pay most, if not all, of your bills online. For paper or phone bills, all that is required for prepaid card use is the card number.
Will Paying Your Bills with a Prepaid Credit Card Help Your Score?
Since prepaid cards are much more like debit cards than credit cards (i.e. they pull from a preexisting cash amount rather than act as a temporary loan from a credit company), they will not help your credit score. Only responsible credit card usage and loan repayments will help build your credit in a positive way over time.
Remember that although credit cards come with some drawbacks, they are also one of the fastest ways to build and improve credit. Long and healthy credit history is often necessary for big purchases, such as a downpayment on a car or a house. A prepaid card won’t present the same financial risks as a credit card, but it also won’t provide the same benefits.
In addition to building credit, credit cards also usually come with certain perks and sign-up bonuses that can be extremely helpful and conducive to your lifestyle. Very few prepaid cards offer any type of rewards, although KOHO is one option that allows you to earn .5% cash back on every purchase. They also offer a Premium subscription for an annual fee of $84, which may be worth it for an extra 2% cash back in some categories.
Pros & Cons of Using Prepaid Cards to Pay Your Bills
Some pros and cons of using a prepaid card to pay your bills include:
- No annual fees, except for some cards or premium subscriptions
- Less risk of debt/no high interest
- Less risk of late or missed payments for regular shopping and expenses
- Less risk of overspending working with a finite amount of cash
- Less risk of fraud than a debit or credit card (a lost prepaid card may only result in a nominal amount of money stolen)
- No impact on credit score
- You can control how much or how little you put on your card
- Risk of depleting your card balance before reloading it can lead to late bill payments, potential overdraft fees.
- Fewer rewards and perks than credit cards offer
- No impact on credit score
As you can see, there are quite a few pros associated with using a prepaid card, though the drawbacks of not using a credit card may outweigh the benefits of using a prepaid card depending on your financial goals. If you are aiming to build your credit history and boost your credit score, you can only do this with a credit card—not with a prepaid card.
Tips and Things to Consider When Paying Bills with a Prepaid Card
When it comes to using a prepaid card, one of the most important tips for success is to continually check the balance to ensure you have adequate funds available. This will ensure you make all recurring payments on time, and that you are always covered when you need to make purchases.
When selecting a prepaid card, it’s important to shop around for good options before settling on whichever card you stumble across first. Some cards do have benefits and incentives that will be more conducive to certain lifestyles than others, such as higher cash back on groceries or travel-related purchases. Though rare, some cards do have annual fees; in addition, there are often hidden fees associated with prepaid cards that are not made clear upfront. Unlike credit cards, prepaid cards do not have to disclose terms and conditions (including fees). Do some digging to determine whether the prepaid card you are considering will incur any such fees.
A prepaid card might be a very good or a bad option depending on your long-term financial goals. If you are primarily focused on better management of your money and are concerned with your credit card spending tendencies, a prepaid card just might be the solution for you.