January 31, 2007

Charge! (…Or Not)

Many people use the terms “credit card” and “charge card” interchangeably, only to be slightly miffed when they discover that, in fact, the two are quite different! A charge card requires you to pay off the entire balance by the due date from month to month – no carrying over a balance. American Express issues many charge cards, for example. While the downside to this payment schedule is obvious, the benefit is real for the financially impeccable and those with self-control – all the access and perks of plastic (including rewards), with none of the interest of credit.

Cards that do allow you to carry a revolving balance are credit cards, and these are most likely what is in your wallet. Credit cards give borrowers a line of credit which can be borrowed against, with an interest rate charged on any carried-over balance, so you can pay things off over time. Used properly, this feature of credit cards is great for when you run into a situation you couldn’t have financially handled otherwise, such as an appliance breaking down or a costly car repair – it’s a glorified payment plan. When used improperly… well, we all know that tune!

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