The Perils of Prepaid Debit Cards

Like infomercials, celebrity endorsements shouldn’t lure you into a bad financial product.

Credit card being swiped at a store
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However, Ulzheimer says prepaid debit cards can help a small market of consumers for a short period of time. Most consumers eventually want to build good credit history so they can qualify for a mortgage or a car loan, so a transition to traditional banking may make sense.

[Read: The 5 Best and Worst Prepaid Cards.]

For those consumers, secured credit cards (sometimes called prepaid credit cards) offer an alternative to prepaid debit cards. A secured credit card requires a deposit similar to a security deposit on an apartment lease, and the cardholder gets a bill each month similar to a regular credit card. Once you eventually get promoted to an unsecured card or boost your credit score enough that you can apply for an unsecured card elsewhere, you typically get that deposit back, adds Harzog.

Credit cards also offer consumer protections that debit cards don't, as Ulzheimer points out. If, for example, you get billed for something you didn't order or that never got delivered, you could dispute it and the charge would be removed from your bill in accordance with the Fair Credit Billing Act. Debit cards do not offer these same chargeback rights.