What Are Charge Cards?
Everybody knows what a credit card is, and though many people see both charge cards and credit cards as the same thing, there are actually quite a few differences between the two services.
While it's true that they both allow you to buy something without paying for it immediately, this is just about where the similarities end. Knowing what these differences are can not only help you choose what kind of card you think is best for you, but also help you stay out of unwanted debt.
What is a Credit Card?
Simply put, a credit card is supplied to you by a lender, such as a bank or a credit card company, allowing you an agreed amount of credit. With this available credit, you can buy things like clothes, goods for your house, even holidays. So, if you have a credit limit of $5,000 on your credit card that is the maximum you are authorized to spend. Try spending any more than that, and the credit card company simply won't allow it, putting you in the embarassing situation of having your credit card declined.
It is best to pay your credit card balance in full each month and avoid interest charges completely. However, many simply pay the minimum required which is customarily between 2% and 5% of the outstanding balance. Obviously the more you repay, the less you accumulate in interest charges. Excessive interest charges can significantly increase the real cost of your purchase. Our Credit Card Interest Calculator will show you how much money your could save in interest charges if you pay more than the monthly minimum payment on your credit cards.
What Is A Charge Card?
While this card works the same way as a credit card in theory, it can be extremely different in practice. Examples of charge cards are: loyalty-type cards offered by retailers such as J.C.Penney or the well respected American Express line of cards.
The main difference is that, unlike a credit card where you choose how much you pay at the end of the month, a charge card needs to be cleared completely.
There are pluses and minuses to this. By ensuring that you have to pay the whole balance instead of a minimum payment, this type of card can help you control your spending. There are some retailers, like Sears and J.C. Penney, who will allow your balance to carry over. However, because of this, there is usually a much higher interest rate charged on the unpaid balance.
Monthly And Yearly Fees
The cost of late or missed payments on a charge card can be significantly different from a late credit card payment. Should you be late for a payment, you can expect to pay around 2.5% - 3% per month, or 30% - 36% per year.
However, since you can carry debt forward on a credit card, late payment usually accrues a charge of around 18% for unpaid balances.
At the end of the day, both cards have their place if used with caution. They allow us to make purchases for things for which we may not have ready cash. The best approach is to save up for something you really want, otherwise when necessary, charge purchases prudently.
Select from an assortment of charge cards.
- Beat Credit Card Debt
- Beware of Credit Card Teaser Offers!
- Average American Credit Card Debt
- Secured Credit Cards
- Statute of Limitations on Credit Card Debt
~ P. T. Barnum
To achieve financial freedom, ideas such as: listening to good advice, learning how to make a budget, understanding credit repair possibilities, avoiding the scams, and generally becoming more knowledgeable of the credit card business, can all play a role in eliminating credit card and other debt. There is A smarter way to manage your money.