So, what’s really in a word? When you whip out your Capital One card to pay for groceries at a supermarket, what do you tell yourself you’re doing? Charging it?
Sure, you’re using a credit card to do it, but you’re charging it … right?
Well, maybe. But know that there is, in fact, a difference between a charge card and a credit card.
I’ll be perfectly honest with you — until this morning, I had no idea there was a difference. If you knew, then feel free to snicker.
For the uninitiated, the fundamental difference is that a charge card (think traditional American Express cards) requires you to pay back the balance in full each month. A credit card allows you to carry a balance from month to month.
Due to the economic environment, and the fact that many got caught with their pants down with regard to credit card debt and suddenly losing their jobs (and ability to pay it back), the Wall Street Journal reports that charge cards are making a comeback. It’s a safer way to delve into the world of not using cash for everything. Think about it: It’s really hard to fall into debt because you have to pay the balance in full each month. If not, no charge card. Banks like them, according to the article, because “there’s less chance than with an open line of credit that someone will max out and be unable to repay the loan.”
Some even have rewards programs like their credit card counterparts and you have the freedom to know that you can’t save paying off the month’s purchases for another time. It has to be done at the end of the month. No ridiculously high interest rates, APR, and all that other junk.
Of course, it isn’t all roses with charge cards. Most require an annual fee, though the article points out that, unfortunately, the annual fee will likely become more the rule than the exception for charge and credit cards moving forward. Read the piece for other potential drawbacks.
All in all, it’s not a terrible idea if you’re looking to get your feet wet with using plastic. You’re essentially shielded from carrying a balance, and it’s good practice to only spend what you know you can pay back at the end of each month. Why? Because you actually have to.
In other news, we’re not just nearing the end of 2009 — we’re at the end of a decade. A lot has happened since 2000, and this article talks about some of the lessons (good and bad) we can take from the last 10 years. While most of the points are related to the stock market, the points are a good refresher for those who have been actively involved in their finances for the last 10 years. It’s also good for those who are just now delving into personal finances, like me, and can see some of the things that I had heard about years ago but didn’t really feel or have to experience.
What are some of the lessons you’ve learned about money and finances in the past year?
This was very interesting – I never thought about the difference between a charge card and credit card – I guess because I use mine only as a charge card even though it is a credit card. Great fact to know.
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