Paying Bills with a Prepaid Card

By Dan Miller. January 13, 2025 · 9 minute read

This content may include information about products, features, and/or services that SoFi does not provide and is intended to be educational in nature.

Paying Bills with a Prepaid Card

Some people choose to pay their bills with a prepaid card, such as a gift card or a reloadable prepaid debit card. This can help with budgeting, since you can set a specific amount of money that goes on your prepaid card. In addition, you don’t have to worry about overdrawing your bank account and can avoid racking up high-interest credit card debt. However, these cards can come with fees and other downsides.

Here, learn how this financial product works so you can decide if paying bills with a prepaid card is right for you.

Key Points

•   Prepaid cards function like debit cards but use funds loaded onto the card vs. drawing on a checking account.

•   Non-reloadable prepaid gift cards and reloadable prepaid debit cards are available.

•   Prepaid cards aid in budgeting by allowing spending limits and help avoid overdraft fees.

•   Fees such as activation, inactivity, and monthly maintenance charges may apply to prepaid cards.

•   Prepaid cards are generally accepted where the card network is accepted, but some merchants may not accept them.

Understanding Prepaid Cards

There are a few different types of prepaid cards, and while they share some similarities, it’s important to understand how they differ.

What Are Prepaid Cards?

Prepaid cards are similar to debit cards, but rather than drawing on your checking account, they pull from funds loaded onto the card. These cards are typically issued by a major processing network without a credit check.

The fact that these cards often use Visa, Mastercard, or American Express processing networks and have the company’s logo on them is why you may sometimes hear them referred to as “prepaid credit cards,” but they don’t offer a line of credit or potentially accrue interest as standard credit cards do. Rather, using a prepaid card usually means that you can use your card anywhere that the processing network on your card is accepted, up to the balance available on the card.

How Prepaid Cards Work

There are a few different kinds of prepaid cards, and they work in slightly different ways.

•   Prepaid gift card: You can buy these prepaid gift cards online and in person at many major retailers. Prepaid gift cards come in different amounts, and usually have a small activation fee that you’ll have to pay in addition to the face value of the gift card. Once you purchase and activate your prepaid gift card, you can use it anywhere that the processing network (Visa, Mastercard, etc.) is accepted. Once you have used up the value of the gift card, it is considered empty and you can’t add funds to it.

•   Prepaid reloadable card: With a prepaid reloadable card (sometimes referred to as a reloadable or prepaid debit card), you can add money to your card at any time, either through a cash deposit, direct deposit of a paycheck or government check, a tax refund, or other ways. You may also be able to reload it by transferring funds from an online bank account or by adding cash at some banks, ATMs, or retail locations. Many prepaid reloadable cards also allow you to pay bills online in addition to using your prepaid card online or at a retailer.

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Benefits of Paying Bills With a Prepaid Card

There are pros and cons of prepaid debit cards. Here’s a look at some of the benefits of paying bills with a prepaid card.

Budgeting and Spending Control

One of the best reasons to use a prepaid card to pay your bills is the ability to set limits which can help as you work to make a budget and stick to it. You control the amount of money that is on a prepaid card, which means that you can control how much you spend. Prepaid cards could also be part of a plan to avoid high-interest credit card debt because you are only spending the cash amount on the card vs. drawing against a line of credit.

Tip: One way to budget by using prepaid cards is to have several different prepaid cards, one for each category in your budget. That way you can more easily limit how much you spend in any one category.

No Credit Check or Approval Required

Unlike a traditional credit card, there is no credit check or approval required to buy a prepaid debit card. You simply buy the card, pay any activation fee that is required, and the card is available for use. That can make paying bills with a prepaid card an attractive option for people with no credit or those with poor credit.

It’s worth noting that activity on these prepaid debit cards isn’t reported to the credit bureaus, and you therefore cannot build credit with prepaid debit cards. However, they could help you avoid negative situations, such as increasing your credit utilization ratio, which might harm your score. (Secured credit cards, however, which require a down payment as collateral to borrow against, may help build credit.)

Avoiding Overdraft Fees

Another benefit of paying bills with a prepaid card is that you can avoid overdraft fees. Unlike a debit or credit card, with a prepaid card, the amount of money on your card is fixed. And if you try to make a purchase for an amount that is higher than is on your card, your purchase will likely not be approved.

While that can be frustrating, it does mean that you can avoid overdraft fees which can occur if, say, you have set up utility bill autopayments but don’t have enough cash to cover the amount one month. These fees can be as high as $35 or $40 a pop, so it can make good financial sense to dodge them.

Potential Drawbacks of Using Prepaid Cards

While there are benefits to paying your bills with prepaid cards, there are also some possible drawbacks as well.

Fees and Charges

While you can avoid overdraft fees by using prepaid cards, there are some fees and charges that you might incur. Many prepaid cards charge an activation fee that you pay when you purchase a card. These are often between $1 and $10. Also, some cards also charge an inactivity fee, if you don’t use the card in a certain time period, and/or a monthly maintenance fee. Make sure you understand any fees and charges on your prepaid card before buying and using one.

Limited Protections and Fraud Liability

Another potential downside of using a prepaid card as compared to a credit card is that credit cards typically have better purchase and fraud protection. When you use a prepaid card, you may be giving up some of those protections.

It’s worth knowing that many prepaid debit cards, however, now offer protections similar to those of standard debit cards linked to a checking account. Check the card’s terms to see what coverage you may have. You may need to register the card to access these benefits.

You also need to be aware that there is not always a way to register a prepaid gift card or create an account. So if you lose your prepaid gift card, there may not be a way to get that money back. Guard your prepaid cards like you would cash.

Acceptance Issues

Most gift cards or prepaid debit cards are issued by a major processing network such as Mastercard or Visa. That means that those cards are usually accepted anywhere that network is accepted. However, you may find some situations where a store or online retailer may not accept a prepaid gift card as valid payment for some types of purchases. (For instance, if a merchant has had issues with declined transactions using this type of card, they may not accept them.) Consider checking with your retailer to see if your card will be accepted before planning on making a major or time-sensitive purchase with a prepaid card.

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Setting Up Bill Payments With a Prepaid Card

You can use some prepaid debit or prepaid credit cards to set up your bill payments. For example, your prepaid card typically will come with a 16-digit card number, similar to a debit or credit card. Simply use that number when you are setting up your bill payments. You’ll just want to make sure that you have enough money on your card to pay your bill. This is especially true if you are using a reloadable card for recurring payments.

Managing Your Finances With a Prepaid Card

It is possible to pay your bills and manage your finances using prepaid cards. This can be a good option for someone who doesn’t have a checking account or doesn’t want or can’t use credit cards. If you do decide to manage all (or most) of your finances using prepaid cards, you’ll likely want to get a reloadable prepaid card. That way you don’t have to continually buy new cards as your funds run out — instead, you can just add funds onto your existing reloadable card.

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The Takeaway

Prepaid cards are typically issued by one of the major card processing networks such as American Express, Mastercard, and Visa. You can either buy prepaid gift cards, which generally are loaded with a set amount and can’t be reloaded, or reloadable prepaid debit cards. Reloadable cards allow you to add additional funds to the card as needed. There are both advantages and disadvantages to using prepaid cards to pay bills, so make sure you understand both the pros and cons before deciding to pay bills with a prepaid card.

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FAQ

Can I pay any type of bill with a prepaid card?

Most prepaid cards are processed by a card network such as Visa or Mastercard. So you can typically use your prepaid card anywhere that network is accepted. However, some bills are not payable with this kind of card, so you may have to make other arrangements. Check with the intended payee to see what options may be available.

Are prepaid card transactions secure and safe?

Prepaid card transactions are generally processed by the card processing network that is indicated on the card itself (usually Visa, Mastercard, or American Express). As such, these transactions are as safe as any other transactions that are on the same network. Just keep in mind that these cards may not have much protection if they are lost or stolen, so guard them carefully.

What happens if I run out of funds on my prepaid card?

What happens if you run out of funds on your prepaid card depends on what type of prepaid card that you have. Many prepaid cards work more like gift cards in that they have a certain amount of money loaded onto them, and when that money runs out, the card has no value. However, some prepaid cards are reloadable, meaning that you can add additional funds onto the card and continue to use it.

Photo credit: iStock/ArtistGNDphotography


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