We are at that very point in time when a 400-year-old age is dying and another is struggling to be born — a shifting of culture, science, society, and institutions enormously greater than the world has ever experienced. Ahead, the possibility of the regeneration of individuality, liberty, community, and ethics such as the world has never known, and a harmony with nature, with one another, and with the divine intelligence such as the world has never dreamed. - Dee Hock

Meet Dee Hock. You’ve probably never heard of the man unless you’re a business school graduate or in the banking industry, but his story is one of the most amazing things I’ve ever heard, tying together chaos theory, hidden organizations, and the reason why credit card companies get away with charging 18% or higher interest rates. Sound crazy? Look at the Visa logo on your credit card and ask yourself this question: how can I invest in Visa? What company is behind that logo? It’s a ubiquitous logo, but the organization behind it is a lot less clear to the casual observer.

Let’s rewind back to 1966 for a moment. The modern credit card was in its infancy, but the names Visa and MasterCard were still yet to be born. Instead, banks were restricted from having branches in other states, so individual, small, competing banks were issuing hundreds of different credit cards and hemhorraging money in the process, because businesses had little interest in accepting dozens of different credit cards. Bank of America of San Francisco came up with the innovation of franchising their card to other banks nationwide, so banks in many states were issuing a BankAmericard; however, these banks were still directly competing with each other from the ground up and many other credit cards were attempting to franchise.

Enter Dee Hock, a vice president at a bank in Seattle that was one of the franchisees of the BankAmericard. During a BankAmericard franchisee meeting in 1968, he stepped forward and said that this entire problem had a solution, one that would not only turn this whole mess around, but would make everyone involved a whole lot of money.

Dee Hock basically created the modern concept of how a credit card works. Instead of it working like the fast food industry, with a bunch of franchises all operating under the umbrella of one overall company (like McDonalds, for example), he founded BankAmericard as a separate company (and eventually renamed it Visa). It’s a privately held company that sells only one thing: cooperation. Anyone that wants to have that Visa logo on their own credit card, and thus be accepted wherever Visa is accepted, just has to follow a few basic guidelines put out by the company: that Visa logo has to appear on the lower right corner of the card, for example. This meant that any number of banks (or any business, for that matter) could make a Visa card, make up whatever rates and fees they wanted to, and have that card be used at any business that accepted Visa cards. Several banks signed up very quickly in the early 1970s and began to issue a lot of cards with the Visa logo on them.

Then, the company turned around and started going to every major retailer in the country, showing that they had a ton of people with these cards ready to spend money, and showed how easy it was, so that these business, for just a little fee per transaction, could offer the service of having a Visa card. Before you know it, almost every business in America suddenly had a Visa logo on their door.

Obviously, lots of consumers wanted the ease of use that came with a credit card, and since this ease was a brand new thing, a new set of rules could be laid down. It didn’t take long for the companies that sold the cards to quickly latch on to very high credit card rates - and because of the complete convenience of it, the consumer didn’t really care at all. The concept of the modern credit card was so brilliant that credit card sellers got away with charging incredible rates - and they still do.

So where did this idea come from? Basically, banks compete with various credit card rates, but also cooperate on the basic pieces of the credit card network: all transactions with a Visa card, regardless of who makes it, are basically identical in terms of the retailer. It’s a balance between the order of cooperation and the chaos of the competing credit card market, a concept which Dee Hock invented wholesale from his readings on philosophy and chaos theory.

What’s the moral of the story? Never stop learning about everything you can, because even ideas that seem completely unrelated can suddenly click together so easily that you can literally make trillions of dollars. No one drew a connection between bank lending, business organization, and chaos theory before this, but many banks now make billions off of this simple idea - and most Americans buy in because the end result (the credit card) is so elegant and effective.

Plus, now you have an interesting little anecdote to share with your friends.

The problem is never how to get new, innovative thoughts into your mind, but how to get old ones out. Every mind is a building filled with archaic furniture. Clean out a corner of your mind and creativity will instantly fill it. - Dee Hock

Recently, AllFinancialMatters posed the following question: which method of getting out of debt works better, Suze Orman’s or Dave Ramsey’s? Here are the compared plans:

Here’s Dave Ramsey’s Snowball Method for paying off credit cards:

Step 1 - Make a list of all your credit cards, ranked in order from the highest balance to the smallest balance.

Step 2 - Beginning with the card with the smallest balance, pay as much as you can on that card while paying the minimums on the other cards.

Step 3 - Once the card with the smallest balance is paid off, take the amount you were paying towards that card and apply to the card with the next lowest balance.

Step 4 - Keep on keepin’ on until ALL the cards are paid off.

Now, contrast Dave’s Snowball Method with Suze Orman’s Method found in The Road to Wealth:

Step 1 - Figure out the largest possible amount you can afford to pay each month toward all your credit card balances together.

Step 2 - Add $10 to each minimum payment that your credit card company is asking you to pay.

Step 3 - Add up all your minimum payments plus $10 added for each card.

Step 4 - Hopefully the difference between the figure found in Step 1 is GREATER than the figure in found in Step 3. If so, apply the difference to the card with the HIGHEST interest rate.

Step 5 - Once that card is paid off, you continue the process (Steps 1 - 4) until ALL the cards are paid off.

Unsurprisingly, being a numbers junkie, I had to start doing some calculations. I created a pair of credit cards with different balances and interest rates and ran the numbers time and time again. What did I find? Most of the time, Suze’s method was better, but not always.

Let’s say you have two credit cards. Your first card has a balance of $5,000 on it, has an 18.9% interest rate on it, and has a minimum payment of $79 (which will take more than 25 years to pay off at that rate). Your second card is a bit better: $2,000 balance, a 10.9% interest rate, and a minimum payment of $19 (again, more than 25 years to pay it off). You’ve decided to commit $500 a month to eliminating this sick pile of debt.

If you use Dave’s method, you’ll make the minimum payment on the first card ($79) and then take the rest of the $500 and use that as payments on the second card ($421). In the fifth month, you’ll have a nice moral victory: that first card is paid off! You can then write a check for $500 a month to the first card, which will be paid off in the sixteenth month with a final payment of $361.69.

However, if you use Suze’s method, you’ll make the minimum payment plus $10 on the second card ($29), then pay the rest on the first card ($471). At the twelve month mark, the big card will be paid off, so you can then put the full payment of $500 towards the smaller card, which will also disappear at month sixteen. The only difference is that with Suze’s method, that last payment in the sixteenth month will be only $262.51. Her method saves you about $100 in this case.

However, if you reverse the interest rates (so that the low-balance card has the high rate), Dave’s plan wins, but only by about $75.

If you’re going to subscribe to a plan and don’t want to run a bunch of numbers in a complex Excel spreadsheet, Suze’s plan is better than Dave’s plan. However, there is a better plan than either Suze’s or Dave’s plan: pay off the highest interest credit card first.

In the first case, where the high interest credit card also has the highest balance, this plan is much like Suze’s, except that you only pay $19 towards the low interest card and $481 towards the high interest card at first. Just like with Suze’s plan, you pay off the high interest card in month 12, but in the sixteenth and final month, you only have to pay $257.56. This is just barely more optimal than Suze’s plan (by $5). In the second case, however, this plan was identical to Dave’s plan.

In short, the pay off the highest interest credit card first always beat or tied both Dave and Suze’s plans strictly by the numbers. Suze’s plan was never optimal, but it was close to optimal the majority of the time. Dave’s plan was either exactly optimal or else quite poor compared to both the “highest interest” plan and Suze’s plan.

However, I’m leaving out one important factor: the psychology factor. Dave’s plan is the best from a psychological standpont because it enables you to feel a level of success much quicker than Suze’s plan or the “highest interest” plan. Even Suze’s plan is better than the “highest interest” plan because you have the effect of doing “more than the minimum” on all fronts, which creates a sense of real progress.

Which plan is right for you? The truth is that it depends on how you’re wired.

Five Minute Finances is a series of tips on how you can save significant money or reorganize your financial life in just five minutes. These tips appear Monday, Wednesday, and Friday on The Simple Dollar.

Tip #2: Call your credit card company
According to CardWeb, the average American household has approximately $9,200 in credit card debt, with the average interest rate hovering around 16.5%. Just a quick bit of math shows that a household with the average credit card and credit card debt is paying $1,518 in finance charges a year. That’s a lot of dough.

Fortunately, there’s a very simple tactic that anyone can use to reduce those finance charges a bit without damaging your credit report. All it takes is a few minutes on the phone and suddenly your finance charges will be steeply lowered. Here’s what you do.

1. Take your highest interest credit card, flip the card over, and dial the customer service number on the back. Wade through their phone menu until you reach a customer service representative.

2. Ask to speak to a supervisor. At nearly all credit card call centers, the people who first answer the phone have no power to do anything at all.

3. Tell the person that you are having difficulty making payments on time and you are seeking a rate reduction. Usually, most supervisors will approve this request immediately and drop your rate by 5 to 7%, because it’s more cost-effective for the company to drop the rate than have to deal with a customer who may be making late payments.

4. If the supervisor refuses to budge, indicate that you are looking into debt consolidation, whether or not you actually are. Mention the possibility of transferring the balance to another card with a low introductory APR. Again, rather than facing the potential loss of income due to a complete payoff, the supervisor will often reduce the rate at this point.

5. If the supervisor still won’t budge, hang up and call back another time of the day (if you called in the morning, wait until the evening, and vice versa). Some supervisors are simply unwilling to reduce rates for any reason, while others are much more willing.

Some tips:

Don’t repeatedly request rate reductions on the same card. If you get one, consider it good enough and don’t continue to call and ask for further reductions. Why? Many companies maintain databases of “trouble” customers and customer service for these individuals in the database is much more difficult than before.

Don’t hesitate to try this on all your cards, but be aware that the lower the interest rate, the less likely you will see a significant rate drop. If you’ve already got a 7.9% interest rate, this phone call probably won’t do you too much good. Instead, save this tactic for the cards that are above 15%, as those are the cards where this tactic is cost-effective.

If you can’t get a reduction at all, consider another solution. This may include signing up for another card and transferring the balance, even though a new card will ding your credit report a bit in the short term. If a reduction or elimination of interest rates makes it possible for you to pay off your card quickly, this may be the way to go.

Remember, this advice is useless if you don’t also curb your spending. If you can’t afford to buy things, don’t buy them just because you have the plastic!

Time spent: Five minutes
Money saved: $460 (that’s 5% of $9,200)

One might have expected that the person who unleashed the credit card on the world would have been a captain of finance, an individual who headed a large bank (or at least an officer at one) or perhaps was the founder of MasterCard or Visa or Diner’s Club. In fact, none of the above were actually true. The person who first developed the idea of the credit card (in the modern sense) and pushed that name into the public domain was a college dropout utopian science fiction writer named Edward Bellamy.

… a credit card issued him with which he procures at the public storehouses, found in every community, whatever he desires whenever he desires it. This arrangement, you will see, totally obviates the necessity for business transactions of any sort between individuals and consumers.
- Edward Bellamy, Looking Backward, 1888

So who exactly was Edward Bellamy? He was a child of a Baptist ministe whose teen years overlapped with the Civil War. He attended Union College, but didn’t graduate, and instead found himself working briefly in law, then in journalism, before devoting himself to literature. His biggest hit by far was Looking Backward, a utopian science fiction novel in which the main character falls asleep in 1887 and wakes up in the year 2000 to find that society has become a socialist paradise.

This novel, Looking Backward, is quite impressive in terms of making predictions about how credit cards work in the modern era, even down to the concept of one receipt for the customer and one receipt for the buyer. Remember, this book was written in 1888, a time in which credit basically only existed as a method for individual stores to enable individual buyers to buy extra items. The idea that you could merely take a card into a store, swipe it, have the item paid for, and receive a receipt in this fashion was, well, the work of science fiction.

“The duplicate of the order,” said Edith as she turned away from the counter, after the clerk had punched the value of her purchase out of the credit card she gave him, “is given to the purchaser, so that any mistakes in filling it can be easily traced and rectified.”
- Edward Bellamy, Looking Backward, 1888

The novel itself isn’t the most easy read in the world, but it is loaded from top to bottom with intriguing ideas, particularly if you are a socialist. The credit card system described in the book, in fact, is backed by the full faith and credit of the American government, meaning that each person is given a certain line of credit on their card and the government uses part of the GDP to pay off that credit. In some ways, the credit card described in the book, for the consumer anyway, is more like a debit card, although functionally the government is extending credit to individuals here - it is merely a given that the individuals will receive a slice of the nation’s wealth each year that will be used to pay off the card balance.

The book not only predicted credit cards and their usage, but it described the modern department store in great detail, envisioning it much like a warehouse that stocked every variety of goods in great abundance, and individuals could visit these warehouses and select whatever items and varieties of items they liked. They would then approach the checkout, present their credit card, and then walk out the door with the purchased item in hand. Sound familiar? To a modern individual, it certainly does; in 1888, it was revolutionary.

“An American credit card,” replied Dr. Leete, “is just as good in Europe as American gold used to be, and on precisely the same condition, namely, that it be exchanged into the currency of the country you are traveling in.”
- Edward Bellamy, Looking Backward, 1888

The concept was so well described that Bellamy even predicted the ease of use of the credit card in other nations, as he describes the card easily being used to exchange between currencies. Again, in 1888, currency exchanges were possible, but the idea of a single device being able to cover purchased items in multiple countries was fanciful.

Bellamy laid out all of these concepts in 1888, but it took decades before society and technology caught up with his vision. It wasn’t until 1950, when the Diner’s Club card was introduced, that the modern credit card came into actual existence, and it was still decades after that before such cards became an expected part of the American consumer experience.

So, here’s to you, Edward Bellamy. Your creativity and vision transformed the way that Americans today use and manage their money, for better or worse. Regardless of your feeling on credit cards, it has undeniably had a transformative effect on America, and the ideas behind it - so simple, yet so incredibly powerful - came from the mind of one man punching away at his typewriter in the 1880s.

I used to have a big pile of in-store credit cards for various chain stores. I would go into a store ready to make a big purchase and the person at the counter would say, “You can save 10% by signing up for our store credit card!” and I would think, “Yeah! It’s like a 10% off coupon - and I don’t even have to pay right now!”

Sure, this offer sounds great on paper, but the truth is that these offers are set up to devour you if you don’t diligently pay your entire bill. For me, the end result of this was a huge amount of high-interest credit card debt that took me years to pay off.

Let’s walk through the pitfalls of such offers, step by step, so you can see how they work.

Chains that use these cards are ones that often see a good deal of credit card use. Shoppers are accustomed to pulling out their credit card anyway to make relatively expensive purchases. Thus, shoppers in these stores already match the target audience for these cards: individuals who frequent this specific store and regularly use credit to pay for their purchases.

Often, the offer is only given when the 10% savings will be “significant.” This is key: if you’re about to make a $200 purchase, the cashier can quickly indicate to you that using the card will save you $20, which is quite appealing to the ears. It makes an expensive purchase seem less expensive, and also creates the appearance of actually putting significant cash in your pocket.

The credit card usually has no grace period (or only a short introductory period). As a result, you begin getting charged interest on your purchase the second the new card is activated and swiped. Often, your first bill will already have a significant finance charge on it.

The credit card often has a high interest rate - 22.99% is a common APR on such cards. This interest rate basically means that in about five months, your 10% discount has been eaten up by the finance charges - and a period longer than that means that they’re money ahead.

The credit card often has a very tiny minimum payment. Such offers often use an incredibly tiny minimum payment, usually just 3% of the total balance. This means that your first bill on a $180 purchase would have a minimum payment of just $5.50 or so. The problem is that if you just do those payments, you’ll be paying the minimum payment for 50 years. Even worse, you’ll pay $318 in interest alone, just to save $20.

In general, in-store credit cards generally are not worth the risk - you’re better off using your own rewards card instead. If you simply must do it, pay off the entire balance as soon as you can. If you don’t, any benefit from getting the card will soon be washed away.

Recently, I received an email from a reader of The Simple Dollar who laid out an interesting yet familiar story:

My girlfriend is a junior in college and she’s managed to dig herself into about $2500 worth of high-interest debt by accumulating credit cards from retail stores (20-24% interest rates). She always makes her minimum payment on time, but she can’t seem to knock down the balance. She works part time during the school year, but doesn’t make enough to actually gain any ground against her debts. Over the summer she will be working full time and has set a goal for herself of paying down at least 80% of the balances. She is diligently cutting up each card as she pays off the balance.

She has gone to her parents for help, but for whatever reason (they are trying to teach a lesson; they don’t trust her) they aren’t helping. She asked her parents to co-sign on a low interest rate credit card to use to transfer her balances, but they refused. She tried to get financial aid to help pay for school, but she didn’t qualify because her parents’ income was too high.

Do you know a) if there are any student loans that she can apply for that don’t require her parents’ signature or depend on their income, and b) if she can qualify for a student loan, can it be used to pay off credit card debt?

Alternately, there are some student-targeted credit cards (Citi has some, for example) that offer 6-month 0% on balance transfers and advances. 6 months, unfortunately, won’t give her enough time over the summer to get the balance paid down. Could this approach turn out to get her in more trouble if she can’t pay off the card before the promotional period expires?

Or, is there another way to help her consolidate debt and lower her interest rates?

So how do we help our friend out here?

First of all, loans aren’t going to help too much in this situation. Assuming that she is still being claimed as a dependent by her parents, she will have a very hard time getting any need-based scholarships. As for loans, there are some pretty strict limitations on those and it’s also a way just to shuffle around debt and postpone it. It’s more worthwhile to learn how to combat debt head on now than to just move debt to the future and wish you hadn’t in a few years.

So let’s look at some other tactics. Here are five things she should do - the first two directly address the credit cards, the other three are more general tips for getting out of the situation more quickly and being able to start saving some money instead of digging out of debt:

1. If she’s been able to keep her minimum payments up to date, she should call the credit card companies and explain her situation, then request an interest rate reduction. If they refuse, mention the Citi cards with a 0% balance transfer, and if that doesn’t work, ask to speak to a supervisor. Almost always, that plan will bring about a reduction in the interest rate, which will help as she pays them off.

2. If her credit has been damaged already by poor payment, contact Consumer Credit Counseling Services (ONLY them, they’re reputable, most other consumer credit services aren’t) in your area. They can negotiate with the credit companies on your behalf. This will likely cause another ding on her credit report (usually, depending on the credit card company), but if the credit is already damaged, you’re better off showing that you’re working to change things than worrying about another potential ding. If you’re still in college, major loans are still several years off, so the damage should be washed away by the time you seek a home loan.

3. Look for extra moneymaking opportunities. Do you live in an area where you can redeem soda bottles and cans for a nickel? Burn an evening a week on a “date” where you walk around campus, fill up a bag of them, and turn them in for several dollars. Do this for a year and you’ve got hundreds of dollars. Donate plasma. Sell some tutoring in whatever subjects you’re best at.

4. Live frugally. I don’t mean be cheap, I mean take advantage of the fact that you are college students, which to many people equates to poor. Hit lots of free dinners at churches in your area and talk to people there; you’d be SHOCKED how often you can come up with someone who has something that might help you at a free church dinner. I got a great job at one, got an offer of free housing at another, and met someone who became a lifelong friend at another one.

5. Sell stuff on eBay. I don’t know a college student that doesn’t have at least a few frivolous things that can be sold on eBay. I sold my Nintendo 64 back in the day, along with most of my presidential campaign button collection, and that paid off some things for me back then. EBay some stuff that you may or may not miss; if you do miss it, buy it back on eBay when you’re more financially stable.

Given that this is a relatively small amount of debt, this situation can actually be a good learning experience in terms of discovering how to effectively manage credit and also the challenges and rewards of battling out of debt. Good luck!

Occasionally, I like to highlight comments about various articles on The Simple Dollar for several reasons. One, it lets me highlight some of my best readers and let them know that I really value their comments. Two, it lets everyone else know how integral comments are to The Simple Dollar. And three, after sifting through hundreds of comments, you quickly realize that there are some real gems in there.

On the post Deconstructing Dave Ramsey, Frank did a bit of extra research into Ramsey’s past:

Wikipedia has a nice summary:
“By enacting 26 U.S.C. S 469 (relating to limitations on deductions for passive activity losses and limitations on passive activity credits) to remove many tax shelters, especially for real estate investments, the Act significantly decreased the value of many such investments which had been held more for their tax-advantaged status than for their inherent profitability.”
http://en.wikipedia.org/wiki/Tax_Reform_Act_of_1986

Ramsey was hurt badly by the Tax Reform Act of 1986, but I neglected to fully explain why this had such a detrimental effect on him. Obviously, Ramsey held a lot of investments that had some major tax advantages before the Tax Reform Act but were simply a much worse investment after the act passed. This caused his bankers to question the risky loans Ramsey had taken out to build his portfolio and they demanded payment on a lot of loans at once - which forced Dave into bankruptcy and eventually led him to become the pundit that he is.

On the post The FICO Battle: Ten Common Tactical Mistakes When Dealing With The Credit Score Blues, Wendell wrote:

On what evidence do you base the idea that negotiating with creditors is better than bankruptcy? Negotiation works where you have capital to make a deal immediately; not for stretched consumers who have to accumulate the payments. High-cost negotiation services have popped up that are as bad or worse than bad credit counselors — and they depend on this sort of advise to thrive. The reality is that if your credit score is shot already and you can’t pay the debt off within a couple years, a bankruptcy will rebuild your credit faster.

The advice I offered in the post was to use FTC guidelines when selecting a credit counseling service. A reputable service (like the Consumer Credit Counseling Service) is going to be better for your credit than a service of questionable repute. Also, turning to a credit counseling service should not be the first step in seeking help with your debt; you should call your creditors and discuss various options with them; it’s usually much better for them to reduce your interest rate a bit than dealing with someone who might declare bankruptcy. Remember, bankruptcy stays on your credit history for ten years, while missed payments only last for seven.

Also, on the digg thread higlighting the FICO score post, iamnos had this to say:

Where I am right now, housing is a great investment. If I were to sell my house right now for market value, pay off the existing mortgage, subtract the mortgage payments and property tax I’ve paid since we moved in, I’d be about even. That’s right, that means over the last 6 years, overall, housing for my family, has cost me $0.

Had I not taken out a mortgage, and decided to rent for the last 6 years, I wouldn’t even be close to zero. Around here, a decent two bedroom apartment would have cost at least $800/month. I’d be down somewhere around $57,600, and that’s not including any interest.

For those of you quoting Ramsey, you might want to pay more attention, as he does not consider a mortgage to be debt. Why? Because its secured, and generally, is expected to appreciate in value. While he does mention that the deduction for the interest on a mortgage is not enough to counteract the mortgage itself, you’re still better off in today’s market to invest that money, even in low risk, low return investments, than to try and pay off your mortgage faster. If you’re drowning in debt, this may not be the best idea, but if your debt is very manageable, than your better off planning long term, rather than short term.

This somewhat ties together the “Dave Ramsey philosophy” and methods of getting a good credit score - or even why you should get a good credit score at all. The biggest reason for having a good credit score is to buy a house, and a home loan is one of the few arguably “good” kinds of debt, because that kind of debt is secured (thus it’s not sold at a frightening interest rate) and the asset you buy builds value over time. In general, I’m opposed to debt, but there is a lot of merit to a home loan.

On the post Money Magazine - February 2007, in response to a reference to inexpensive prices when traveling to South America, Jim Lippard had this to say:

I was just in Buenos Aires last week (and had great summer weather)–it’s not just the exchange rate, it’s that most travel-related expenses themselves are much less expensive in South America than in Europe. In particular, eating out in Buenos Aires is quite inexpensive for very high quality meals. And even if you stay in a top-of-the-line hotel and eat in restaurants in touristy areas, the prices are still significantly less than the European equivalents.

My family and I have been quietly planning an international vacation in a couple years and we’re leaning more towards South America by the day.

As always, thank you guys so much for reading and commenting on The Simple Dollar. Not only do I get a lot of value out of your thoughts, so do the thousands of others who visit the site daily. Your input really helps make a difference in people’s financial lives.

Most people think that the phrases “charge card” and “credit card” are interchangeable; that they refer to the same thing. The truth is that they’re not. So let’s step back, look at the differences, and see which one is best for you.

A charge card is basically just a means of obtaining a very short term loan (usually a one month loan) for a purchase. The card issuer agrees to make you these loans at your discretion. When you pay back this loan before the end of the term, you never pay any interest on it, but if you can’t pay for it, there’s usually a pretty stiff penalty: 5% (or so) of your total outstanding balance, plus possible revocation of the charge card. In exchange for this service, you are sometimes charged an annual fee, but a few charge cards charge no such fee. Most American Express cards are actually charge cards, not credit cards.

On the other hand, a credit card does not have to be paid off in full at the end of each month. These cards can carry a balance forward, but the credit card issuer charges you interest on that forward balance. Also, there are no late fees if you pay the minimum payment each month, and such cards almost never charge an annual fee.

Which one is better for me? Charge cards tend to be targeted more towards financially stable travelers, as most charge cards tend to offer a lot of individual consumer protection, particularly when traveling. They also tend to have rewards programs that benefit people who make lots of purchases but pay them off regularly. They’re also better for controlling temptation to “charge” things you can’t afford, because they have to be paid off at the end of the month. In general, my experience has shown that charge card companies keep a pretty tight leash on the card users, but they treat “good” users quite well, while credit cards tend to give you more than enough rope to hang yourself.

As a general rule, you shouldn’t use either one unless you’re financially stable and can keep the balance under control. Then, if you don’t use a card too much, a credit card is better because you’re not dinged with fees, but if you use it as a primary purchasing vehicle, a charge card might be better as it offers more consumer protection. The rewards programs are largely comparable with a slight nod to charge cards.