Sending your teenager off to college may be a stressful job as you may have to give him financial freedom. It is a fact most commonly accepted that college students are unable to handle their finances on their own. Giving them credit cards and pushing them towards a market is like pushing them towards the debt hole. Though there are debt help companies that exist to help students get rid of their debt burden, yet it is better not to trash your credit score when you are just in your college. While a credit card can give the students a protection from the unexpected, you can also equip a student who has not yet developed fiscal responsibility with a prepaid credit card. Using pre paid credit cards is a good way of avoiding incurring huge amount of future debt.
A pre-paid credit card – How does it work?
As you use a prepaid credit card, you immediately require depositing money into your card that operates just like a gift card. The amount of money you spend on purchases will be deducted from the balance reducing the amount. For example, you deposit $500 in your prepaid credit card and then you shop for $300, an amount of $200 will be left in your account for further purchases. As you exhaust that remaining account, you have to again reload your account with further balance. Since you are spending from a fixed amount, you know where to draw the line. There is no chance of incurring debt as you cannot purchase if there is no balance in your pre-paid credit card.
Managing a prepaid credit card account is more like managing a bank savings account rather than managing your credit card. Here, you need not worry about high interest rates, fluctuating finance charges and even outrageously high late fees and penalties. You’ll only be able to spend what you have in your account and there are no due dates to remember.
Will it help you rebuild credit rating?
Getting a prepaid credit card does not depend on your credit history. As most students do not have a long payment history, this factor is not taken into consideration. However, this is for you to know that using a prepaid credit card will not help you rebuild credit. A prepaid credit card speaks nothing about your spending and borrowing habits and thus the transactions are never reported to the credit bureaus.
Thus, if you’re a parent of a teenager, you must make sure that your teen is using a prepaid credit card so that he does not get trapped in the vicious cycle of credit card debt. Try to avoid seeking professional debt help as it is a waste of money. Instead, use a prepaid credit card until you become a financially responsible teenager.
