Consumer interest and media attention spiked in mid-January 2012 when personal finance expert, Suze Orman, introduced a prepaid debit card with the potential to help improve credit scores.

In a unique pilot program, transactions on Orman’s cards are reported to TransUnion to determine if spending activity can be included in credit scoring.  Other celebrities including Russell Simmons, Alex Rodriguez and even the Kardashian sisters have sponsored cards, bringing broader awareness to consumers; but the question is: Are they right for you?

To shed some light on prepaid debit cards and help answer this question, InCharge Debt Solutions provides the following basic information on how these cards work, the pros and cons along with the three questions consumers should get answered before they sign up.  InCharge is a leading nonprofit organization that interacted with more than 1.1 million consumers in 2011 providing free credit counseling and personal financial literacy education.

“Prepaid debit cards certainly serve a purpose and offer many Americans financial opportunities and services for which they cannot otherwise qualify,” says Etta Money, president of InCharge.  “However, there certainly are some potential pitfalls and, if you’re not careful, negative financial consequences can result.”

What it is: A prepaid debit card is simply a reloadable card provided by a bank or other financial institution that allows you to only spend up to the amount you have pre-deposited into the account.  “Prepaid cardholders want total control of their money and to know in real time exactly what is spent, where, and how much money is left,” notes Kirsten Trusko, president of Network Branded Prepaid Card Association (NBPCA).

“These consumers are budget conscious and focus on their lowest cost option for the services they need, and they do so without traditional bank accounts, branches and paper.”

“A prepaid card can be a useful budgeting tool to segregate funds and enforce spending limits, to limit loss and fraud exposure when traveling, provide secure funds to children or for immigrants to remit money to relatives living in other countries,” advises Ben Woolsey, director of marketing for CreditCards.com.

The Pros and Cons: In today’s turbulent economy, a growing number of consumers are experiencing credit problems and prepaid debit cards help because they are much easier to qualify and/or pay for than traditional banking or credit accounts.  Other advantages include fraud liability protection; Visa/MC/Discover/Amex symbol enabling online transactions; cash from ATM machines; and less costly than check cashing services.

“On the down side, virtually all prepaid cards come with a myriad of fees,” cautions Woolsey.  “Some prepaid debit cards are clearly more consumer-friendly than others – charging very nominal monthly fees and function much like a virtual checking account.”

Additionally, disadvantages include: fees for loading money or using the card; more expensive than a checking account and when using an ATM at the host bank; and, very limited reporting to credit bureaus and not likely to help improve your credit like a traditional or secured credit card.

Three Questions to Answer: InCharge recommends that consumers get answers to these three questions before signing up for a prepaid debit card:

1.) Is it right for you?

“Contact the bank or financial institution of your choice and find out if you qualify for a bank account and debit card, and what costs are involved so you can compare,” says Money.

“Some parents use prepaid cards for their children so they can track expenses and limit spending amounts, so there are many things to consider when deciding if they are right for your situation.”  Trusko’s NBPCA has some great information and questions to ask yourself in order to make your decision at http://www.nbpca.org/Consumer-Corner.aspx.

2.) What are the cards features and costs?

“The best way to choose is to compare fees of the various cards in one place and understand if there is a cost to apply, receive the plastic, activate and/or to load,” recommends Woolsey.  “Annual or monthly fees can also be common but must be disclosed along with any other charges in the terms and conditions of the application.”  Once again, NBPCA has a tool that can help you compare which card is right for you at www.prepaid101.com.

3.) What should I know about these cards?

Before you make any decision on a new financial tool, take a little time to research it and make sure you understand important details and the pros and cons.

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