If you like the convenience of a credit card, but lack discipline and overspend when using one, a general purpose reloadable (GPR) card could be the way to stabilize your finances.
GPR cards, more commonly referred to as pre-paid credit cards, are safer than carrying cash and accepted almost everywhere because most are sponsored by the major players in the industry: Visa, MasterCard, American Express and Discover.
Unlike credit cards, however, you can’t overspend with them.
That is one of the reasons they are popular with people trying to rein in their credit card purchases. They also have become the card of choice for the millions of Americans who don’t want a relationship with a bank or have been refused service by banks.
GPR cards have a specific dollar amount loaded on it. Reach that limit and the card automatically declines any purchases. There is no going over that limit. You can’t put off a payment, pay it late or just make a minimum payment and settle the debt somewhere down the road.
It’s game over until you load more money on to the card, which is usually done with income from paychecks or government-issued checks.
That is why GPR cards are considered “budgets in a wallet.” They are not linked to a checking account, but can be used as an alternative to one. You can use GPR cards to pay for just about everything … as long as you have enough money on the card. No money on the card means no more spending.
That has practical application for people trying to cut back on credit card spending as well as the surprisingly large number of people who don’t have a bank account.
According to the Federal Deposit Insurance Corporation (FDIC), seven percent of American household – 16.7 million adults — don’t have a bank account of any kind. Twenty percent of household (almost 25 million households) are classified as unbanked, meaning they have an account, but use alternative financial services to conduct their business.
GPR cards are the most popular alternative. In fact, 55 percent of the GPR cards in use belong to people who are unbanked or underbanked .
Another surprising aspect of GPR card use is the income of people who use them. According to a 2013 survey, 52 percent of GPR card users have income over $50,000. Their average income is $63,217.
Though GPR cards represent a tiny portion of overall consumer spending – just 4 percent compared to 53 percent for credit cards and 43 percent for debit cards – the amount spent is skyrocketing. GPR spending is up 211 percent over the last five years.
Card owners use them in much the same way people with bank accounts use checks, meaning to pay bills.
Other popular reasons to own a GPR card include:
- Ease of use. They are accepted everywhere credit cards are accepted.
- No credit check necessary when signing up for a GPR card.
- Can be used to make bill payments online.
- Using GPR cards does not affect your credit score.
- Customer can reload the card automatically through paycheck or government-issued checks such as Social Security, SSI, tax refund, etc.
- Can be used to withdraw cash at ATMs.
- Make online purchases without having to give up personal information.
- Not subject to identity theft and credit card theft problems when major retailers like Target, Home Depot, etc… get hacked.
- No overdraft fees. When GPR card reaches spending limit, it will be declined by merchant.
- Teaching tool for children. Parents can pre-set an amount on a card and limit children’s spending as they learn how to handle financial responsibilities.
The major drawback for GPR cards is the fees associated with their use. There are activation fees, transfer fees, fees for using ATMs and several other fee categories, depending on what card provider you use.
Some fees can be negotiated based on direct depositing checks; maintaining a minimum balance; using a network ATM; and avoiding transaction fees for going over you balance