Personal Finance 101: Charge Cards vs. Debit Cards vs. Credit Cards

Understanding the Pros and Cons and Finding the Right Card for You

pf101A very long time ago, I wrote an extremely brief article covering the difference between charge cards and credit cards. That article really didn’t answer the question, though, because I still have conversations and receive emails where people use the phrases “charge card” and “credit card” interchangeably.

Along those same lines, Tim writes in recently:

Am I better off using a charge card or a credit card for buying stuff?

At first, I just assumed that Tim had replaced “credit card” with “charge card” in his vocabulary and I began to answer that question, but then I realized that it’s worthwhile to distinguish between all three types of cards and their advantages and disadvantages. So let’s go through them one by one.

Credit Cards

A credit card is borrowed money. When a company issues you a credit card, you’re given a specific credit limit – the maximum amount you can borrow from the company. Each time you use the card, you borrow some amount from that company, and each month, you’re required to pay back a portion of that amount to the company. Mastercard, Visa, and Discover are the major types of credit cards.

Advantages

The biggest advantage of a credit card is the flexibility. You can make purchases without actually having the cash on hand at the moment. You also have an indefinite amount of time to pay back that money, though you do have to make a minimum payment each month on what you owe. Many credit cards also have rewards programs, which return to you 2-3% of your purchase price in some form or another – often in the form of gift certificates or rewards programs. Also, good credit card use helps you to build a good credit report, which can save you money on insurance and help you with loans. Consumer protection with credit cards is usually pretty strong, too – they’ll often help you deal with fraudulent purchases and don’t leave you out to dry if you lose the card.

Disadvantages

The big disadvantage is that all the flexibility is a double-edged sword. The ease of use of credit cards and the lack of pressure to pay off what you owe makes it very easy to make poor purchasing decisions. Then, when you can’t pay off the card, you usually pay a hefty amount of interest on that unpaid amount – and over a long period, that interest can be incredibly costly.

Debit Cards

A debit card, on the other hand, is linked to your checking or savings account. Each time you use the card, money is automatically taken from your checking or savings account to cover the purchase. Many debit cards have the same purchasing flexibility as credit cards, as many are accepted where Visa and Mastercard are.

Advantages

You can’t get into debt trouble with a debit card. It does not allow you to buy things that you don’t have the money for. For people struggling with debt, this is a huge advantage because it keeps you out of trouble. Plus, they’re flexible and convenient for day-to-day purchases. You also don’t have to have good credit to get a debit card – you often get one with your checking account.

Disadvantages

The biggest disadvantage is that you have to keep a very close eye on your account balances, because you can overdraft your account if you’re not careful. Another disadvantage is that very few debit cards have rewards programs of any kind. Debit cards often don’t have the same consumer protections that credit cards and charge cards have – if your card is stolen, your protection against unauthorized purchases can be weak.

Charge Cards

Charge cards are often confused with credit cards, but they actually function in a fairly different fashion. Like credit cards, charge cards extend credit to you from the issuer, but you’re required to pay the full balance at the end of the month. Some charge cards also have an annual membership fee. Charge cards are typically associated with American Express; many store chains often issue their own charge cards as well which can only be used at that store.

Advantages

You don’t have to have the money on hand for a purchase with a charge card, nor do you run the risk of carrying a balance that will charge you interest. Many charge cards have tremendous bonus programs that go from things like 5% cash back to free companion flights on airlines – their bonus programs are typically better than bonus programs for credit cards. Charge cards often come with additional services and benefits, like free roadside assistance, free food at airports, and free hotel room upgrades. They also help your credit much as a credit card does. Most charge cards offer strong consumer protection as well, similar to that of credit cards.

Disadvantages

Some charge cards have an annual fee which eats away at the benefits from using it. Also, since you are operating on credit, there is some risk that you might build up a large balance on the card that will be difficult to pay off. Many charge cards are usually pretty strict in terms of who they’re issued to – you need to have good credit before even getting one.

Which One Is Right For Me?

Many people wish to avoid credit at all costs because of the risk of debt – in that case, a debit card is obviously the right choice. If you’re seeing a great debit card (preferably one that has some semblance of a rewards program), you should investigate all of the checking options available at your local bank and also perhaps do some shopping for a new bank, particularly if you’re unhappy with your current bank for some reason.

I tend to believe that it’s worthwhile for everyone to apply for at least a single credit card and use it irregularly. It provides a very easy way to build a positive credit report and gives you some flexibility in purchasing. If you have a good rewards card (for example, I use my Citi Driver’s Edge card for all gas purchases), you can also earn multiple percentage points back in rewards.

If you have excellent credit, have a strong policy of paying your balances back in full each month on your credit card, and travel a bit, it’s worth examining some of the charge card offers available to you, particularly if you’re running a small business. Typically, one can get a big net benefit from a good charge card, but you have to be aware of the benefits alloted to you by that card. Plus, you can’t get into revolving debt trouble with a charge card since you have to pay the balance in full each month. I know at least one small business owner who makes a killing with his charge card, getting tons of free flights, free airport foods, discounts on rental cars, roadside assistance, free hotel rooms, business advice, and so on, but those are rewards that others may have difficulty maximizing.

My suggestion, if you’ve never owned a card, is to get a good checking account (I use ING’s Electric Orange as my primary checking and I’m happy with them) and use their debit card for most purchases. At the same time, get a credit card, use it for only a few purchases, and leave the card at home so you’re not tempted to use it. This allows you to start building healthy credit without the debt risks of a credit card.

Please, readers, fill in additional details you see as important – many more people than just Tim will find use with this information.

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  1. Money Granola says:

    Trent, I think that if you are purchasing something expensive, like electronics, you should use a credit card. I purchased my Sony laptop on a credit card two years ago. Because I used a credit card, the warranty was automatically extended from 1 year to 2 years. When the battery died after 23 months, the repair was covered under warranty and I was able to file a claim.

    I understand that you might want to use your debit card to avoid debt and avoid the temptation to splurge, but I think the benefits of the card outweigh the drawbacks.

  2. Jesse says:

    What about online purchases? Does a Visa debit card offer you the same kind of protection that a Visa credit card would?

    For instance, say I buy something online and for some reason the shipment doesn’t arrive. I contact the online retailer and they say it has arrived.

    If I used a credit card, I can contact my credit card company and dispute the charges and likely won’t have to pay. But what happens if I’ve used a debit card? Since they already have my money, what leverage or protection do I have? Does that vary depending on the bank that issued the debit card or does Visa offer some kind of protection for those sorts of events? Or am I just out of luck?

  3. Mel says:

    Can you clarify something for me? I’ve read that if you *don’t* use your PIN (meaning when you swipe your debit card you push “credit” instead) that you do have the protection of Visa/Mastercard/whoever issued your card. Which if you card gets stolen, seems to mean you would have some protection- but if your PIN gets stolen you are depending on the bank to give you the money back.

  4. Jared says:

    I would mention Check Cards as well – they’re not quite the same as debit cards (although they’re often the same physical card).

    Both check and debit cards draw directly from your bank account. A check card is run like a credit card, with swiping the card, signature, etc. Normally a debit card has you put in your PIN number. Another caution with debit cards is the “cash back” feature – you can usually get an amount from the cashier rather than running to an ATM, but some banks charge the same non-company fee as if you went to someone else’s ATM.

    My bank offers a percentage back when I use my check card like a credit card (ie, not as a debit card), as well as refunding ATM fees.

  5. EllaJo08 says:

    Just wanted to let you know (in case it tells you…) I did unsubscribe to get your blog via email, but I did subscribe to get it through my RSS reader.

    And I agree with Jared. I don’t touch credit or charge cards — it’s too easy to slip up. But I do use the check card function of my debit card *All* the time. I do get “points” back, which I redeem for cash, and I don’t wind up with a separate statement at the end of the month. And I’m not charged a fee, like when I use the debit function. And I never, ever carry cash on me. Because I spend it too fast, and don’t write down where every penny goes.

  6. Matt Cullen says:

    A couple of things I didn’t see.

    1. Before using a debit card to pay for everything, check to see if there are any fees for using the PIN. My bank charges a $0.25 fee every time the PIN is used. This can easily add up to a couple hundred dollars a year.

    2. If you are disciplined, able to pay off your credit card every month, and your checking account pays interest, you’re better off paying with credit than debit so that money can sit in the bank earning interest over the course of the month.

  7. I live in Brazil and I don’t think we have the “charge cards” here. Os course we do have debit and credit cards. Debit cards don’t reward at all. Credit cards with rewards charge an annual fee. I use to use only debit cards: no way to mess the balance and end up with a huge hole in my budget. On the other hand, I realized I use “plastic money” all the time and I should get some advantage out of it. Today I ordered a credit card with rewards (I had a no-fee one, but with no rewards). Each dollar spent will be converted in 1,33 mile for air trips. Once I reach 10 thousand miles I can exchange that for a air ticket, to any destination in South America. It sounds good for me. I will have to pay 75 reais per year (something like 30 dollars). I realized it will demand a lot of discipline from me: I will have to watch the spending carefully, so I’m not in trouble once the monthly bill comes. Other than that, I find a lot of advantages on it. I will direct most of my spending to this new credit card. That will add miles to my air company membership (where I get other extra miles for work trips). Soon I will be enjoying nice vacations somewhere away from home. It will have cost only discipline and 30 dollars. It’s good. Isn’t?

  8. Steve says:

    Are there Visa and/or MasterCard charge cards with the outsized rewards you mention? Or is the correlation just due to American Express having charge cards and outsized rewards?

  9. Adam @ Checkbook Diaries says:

    I’ve never used a charge card, and really try not to use a credit card at all. I ten to use cash for many purchases, and my personal debit card (that is not linked to our main joint checking account) for other purchases. We don’t use the debit card for our main account because we’ve heard too many stories of checking accounts getting wiped out after the debit card number is stolen. If we go to make a high value purchase that we are not comfortable carrying the cash, we use a credit card and then pay that purchase off in full at the end of the billing cycle.

  10. Scott says:

    I agree with Jared that Check Cards are worth mentioning. Plus, when my wife had hers stolen, the bank was swift with few questions asked about crediting the account (which was one of my biggest fears with check cards). I didn’t want to have to wait days to get credited, while my automatic bills started overdrawing.

  11. SJ says:

    Hey cool, I’ve never knew there was a difference between charge and credit cards.

    Any good examples of the charge variety?

    Other than the annual fees they sound useful =)

  12. Bryan says:

    I have always carried an Amex Blue credit card and have been satisfied with it’s low interest (9%) and relatively robust benefits. However, I recently was looking to increase my benefits package and “discovered” Diner’s Club charge cards. I love it. I don’t run a balance and have outstanding credit so these items to me were immaterial. It does come with a $95 yearly fee, but the benefits far exceed the cost. I can get a companion British Airways business class, or economy plus ticket each year with the purchase of such a ticket. Also all of the additional insurances (travel, luggage, AD&D) that cost for normal credit cards for “free” (I realize these are part of the yearly fee). But normally, you pay ~$10.00 for the additional insurances when you travel on credit cards such as Amex Blue, so it is worth the yearly fee to me. Also, remember cards like Amex charge interest on average daily balance so even if you pay if off every month, you will still pay interest, not so on a charge card. For those that can qualify/afford them, they are far superior.

  13. Karen says:

    Another disadvantage of a credit card is the way they can raise your interest rate and cut your available credit whenever they see fit. Citibank raised my interest rate 10% for no reason. I was never late and well under my available credit. Also, BoA just reduced my available credit by 50% and again I was never late and well below my credit line (probably too low for their liking).

    And to top it all off they took my tax money-TARP money! I’m so done with credit cards. I have no idea why their business model would to be annoy their good customers.

  14. Kim @ money for disney says:

    I use credit cards for the rewards, but I make certain to pay them off in full each month.

  15. Heidi says:

    “[A debit card] does not allow you to buy things that you don’t have the money for.”

    If this were true, the disadvantage of overdraft fees would not apply. Your bank will allow you to spend money you don’t have, they’ll just take a hefty overdraft fee every time you do it.

    Another advantage to ING’s electric orange is their overdraft program. They only take interest on the actual $ you borrow, rather than a flat fee regardless of the overdraft amount.

  16. Tom says:

    I would be careful about debit cards. You do have very similar protections as credit cards, but you have almost no power in a dispute. I had an ING account and had a series of fraudulent charges, all less than $50. In the end I successfully disputed all but one with ING but the point is they just decided, “nope its legitimate” and took the money, with a credit card I have to write the check. As a side note ING’s customer service is pretty weak if you actually need to talk to someone (ie identity theft)

  17. Tara says:

    I know debit cards are risky, but I just can’t handle a credit card – have tried for 20 years, and it’s just too tempting, I repeatedly get myself into debt. I wish I could find a better solution.

  18. Jesse says:

    @Tara – I would wager that credit cards are a hell of a lot more risky than debit/check cards.

  19. Bill in NC says:

    Consumer protections are much weaker with debit cards – voluntarily offered by banks instead of legal protection you have with credit cards.

    As another poster noted, you’re essentially asking the bank to put back money already taken out.

    During which time checks may bounce, or they decide what you claim was fraud was a legit transaction.

    Sue them in small claims if you don’t like their decisions on the latter.

  20. Jerry says:

    Many Credit Cards are increasing rates and cutting credit limits even on those with good payment histories. My FICO is (or was) 805 but one of my VISA’s decided to cut my limit by nearly half. Both raised the rate to 17.5%. I pay my bills off every month and rarely are they above $250.00 so it doesn’t really affect my lifestyle. Still it POs me that my bank and Credit Union would take an excellent customer and treat them like that. Maybe I should look into the Costco AMX since it doesn’t charge a fee with membership.

  21. KC says:

    I’ve had my credit card number stolen electronically a few times and I can’t help but think it would be just as easy to steal my debit card number as well if I used it instead of the credit card. Debit card misuse is much less protected than it is with credit cards. And the debit card is tied to my checking account. I don’t care how well protected they say my debit card number is I refuse to use it instead of the credit card. I’ve never had any problems or been charged 1 cent whenever someone stole and used my cc number. But if they get my debit they could drain my checking account.

  22. kitty says:

    “Another disadvantage of a credit card is the way they can raise your interest rate and cut your available credit whenever they see fit.”
    If you pay your bill in full every month, why do you care about interest rates? There is crisis now, and credit is expensive. As to credit limit cards – again, it’s too bad, but there is a lot of fear now that credit card defaults is the next shoe to drop. Additionally, there is a limit on how much money a company can lend vs how much money they have in reserve. If they are afraid of future losses, they may simply not be able to borrow this money.

    “And to top it all off they took my tax money-TARP money! ”
    In case you forgot, the first 9 banks that took TARP money were FORCED to do it! Banks like Wells Fargo, Goldman Sachs, Morgan Chase didn’t need or want this money. In fact, Wells Fargo CEO objected very strongly during the meeting with Paulson when Paulson told them – you all have to take this money. Yes, some banks like Citi and BofA needed the money, but not all banks. Also, in case of Bank of America, most of its problems stem from the purchase of Merill Lynch. Do you know that the government forced BofA to buy Merill? Some of the banks that took this money later needed it, others thought that now that others took it they would be in competitive disadvantage without it.

    Additionally, in case you don’t know TARP is not a gift but a loan. The government is making a lot of money on interest. The government is borrowing money at 2.8% for 10 years and near-zero short term, and it is lending it at 5% for first 5 years and 9% thereafter. Do your math as to how much money it amounts to, especially for healthier banks that never needed this money to begin with. These are billions in interest. Oh, and if you are wondering why the banks don’t just return it, they aren’t exactly allowed to do so when they want. Many of them indicated they want to return the money, now that government changes the rules mid-stream. In addition to government’s not allowing everyone to return it when they want, there is a sort of pre-payment penalty for returning too soon in cases when government allows it. When the government gave this money, the companies were made to sign some agreement that if they pre-pay the government can exercise stock warrants. I don’t know all the details, but basically, this rule caused a couple of smaller banks that just returned the money to pay the equivalent of 60% interest on the original TARP loan.

    How would you like your lender e.g. for business loan a) either force you to take the loan you don’t really need b) made you sign papers that included conditions that made repaying it during first 3 years very expensive c) several months after you took it, start telling you what kind of furniture you are allowed to buy and how much money you can pay your stuff and how you should run your business even if this was not in the original agreement?

    Think about it next time you talk about how these banks took your money. Oh and also think about how many private corporations would want to deal with government now on all programs where the government actually wants private capital. Not too many participants in TALF, for example, since nobody wants to deal with government with its ability to make retroactive rules and re-write contracts.

  23. kitty says:

    Just to add – I don’t work for banking industry. I just follow the news, especially economic and financial news, and I keep myself informed of these little details. While some of the things – like difficulty in returning TARP money sooner may not be as well known, the fact that the first 9 banks were told “you have to take this money” is a well known fact. I am amazed that everyone forgot about it. I also would like to believe in rule of law and what is happening right now is not lawful.

  24. Carrie says:

    When travelling:
    – use debit card for withdrawing local currency
    – have non-Amex credit card for purchases (not everyone accepts amex)and for emergency travel — I needed to get home quickly and the airline would not accept a debit card (although I knew I had sufficient funds)
    – have Amex or other credit card with unlimited credit. When my husband became seriously ill overseas he handed the hospital his amex card and all was well

  25. Sandra says:

    A warning to anyone choosing a charge card: Although there is “no limit” on your card you have to build that limit yourself by building a history of charging and paying back. I know this sounds silly but for the first 2 months pay all charges off the card if you can every 10-14 days. This will show the lender you have the cash to pay it back and the desire to do so, thus augmenting your credit limit.

    If you’re in need of a really big purchase (car, house reno’s) call the company beforehand and let them know so they can pre-approve it. If it’s a newer charge card soemthing like that may not be permitted without a conversation with you first.

    Having worked for a major charge card lender I can assure you these guidelines will prevent them from calling.

    Also, both in Canada and the States your credit rating improves if you prove you can pay back different kinds of debt; charge is a different kind and if paid back regularily, will raise your credit score.

  26. Randy says:

    For travel, don’t forget the fourth kind of card – the ATM card. This allows you to access your bank account for funds (domestic or foreign) but takes away the worry that someone will steal your card and drain your account. Without your PIN number, the ATM card is worthless to others – unlike credit and debit cards. As a bonus, if you have a CapitalOne ATM card, there are no outside network or conversion fees for foreign currency. When I travel to Paris from the US, this saves me $30-$50 each time I withdraw 300€.

  27. Katherine says:

    I would add that for an Amex charge card, the ease of disputing charges is far superior than the credit counterpart. Additionally, my Amex Gold has buyer protection for certain items. My husband bought our TV on it and when it pooped out just after the year-warranty expired, Amex covered the cost of fixing it – a savings of $600

  28. John Dove says:

    Trent, I see one comment on the dispute benefits of credit/charge cards. Can you elaborate, please? If I am unhappy with my credit/debit purchase, am I not out of luck if I’ve paid with a debit card — the same as if I’d plunked down cash?
    Thanks!

  29. Karen says:

    @Kitty-Looks like I hit a nerve. Thank you, I do “think” a lot and will think even more when I find other banks to conduct my business. Certain banks pushed credit cards like drug dealers and leverged themselves to hilt over the last few years and now they are paying the price. Now that’s something to think about.

  30. Anne says:

    One other key difference between the different card types is how some purchases are handled.

    Gas, hotels, and rental cars are the big three but I’m sure there are more. All three types of services can put a “hold” on money in your account. If your use a debit card that means that they have the right to hold money that you may or may not spend with them for the duration of your stay/use even if you do not end up spending that money (or, with gas, until the actual transaction amount is posted a certain amount is held). You may have that money but it is taken out of your checking account and then put back a few days after the final transactions clear.

    On a credit card these types of charges typically show up as a $1 open/pending charge that the business can then adjust to the actual spending of the customer once the final transaction clears.

  31. kitty says:

    Karen – I do NOT work for banks. I am a software engineer who does software R&D for a large technology corporation. No relation whatsoever to banks. Unlike “drug addicts”, though, who spent like crazy and lived beyond their means, I’ve been responsible with my money, and have no debt, considerable savings and investments. But what the congress is doing with regards to TARP pushed by people like you who scream “they took TARP so they shouldn’t do X” is not right when the government shoved TARP done some of the healthier banks’ throats, then changed the rules several months after the fact, and now doesn’t allow banks to return the money, is hurting the economy, the employment and chances for the recovery. So yes, it affects me. It affects you too. The fact that nobody with private capital wants to help government with their private-public partnership programs is hurting the programs that are supposed to help the economy. Do you know that the first two TALF auctions that government had brought a couple orders of magnitude less participation that government wanted. You know why. Because nobody trusts the government not to break its promises and to honor its contracts. Would you deal with a business who has power to break contracts at will. No, not to write in a contract that some conditions can be changed at will – this is legal, but simply break the contract or assign new conditions after the fact?

    Talking about cutting your nose to spite your face.

    Yes, many banks took risks, over-leveraged and are paying the price. Many of these banks are already out of business. Some like Citi are paying the price with governments’ owning 30% of the shares. Incidentally, why doesn’t government follow the laws as everyone else? They own 30% of the common shares which makes them a single largest shareholder, so they can exercise their voting rights to make Citi do what they want in a legal way – by bringing issues on the board of directors and voting their shares – and not like a communist-style government that imposes its will regardless of its voting power? But unlike with Citi, the government doesn’t own Wells Fargo and USB. Yes the government lent money to both of these companies – in the former case the government showed the money down Wells Fargo throat against its objections, but they don’t have the voting rights; they have preferred stock not common shares. Lending someone money doesn’t give you the right to dictate to them how to run their business, not legally and not unless it was written up in an original contract. Not as long as they pay the interest. You cannot attach conditions to the loans you made, several months after the fact. Do you really want to live in a society where contracts are meaningless, where the rules are changed at will? So put your rightful indignation aside and think about the law and the global picture. Do you want to live in a lawful society or a lawless one?

    Not all banks that took TARP were over-leveraged or needed the money. Quite a few took TARP because Paulson told them to. Paulson wanted healthier banks to take this money to avoid stigma attached to it. So what exactly are these banks supposed to pay for? For helping out the government in September?

    As to pushing credit cards as drug dealers – drugs are illegal, credit cards aren’t. Any business has a legal right to advertise and sell their product. As an intelligent consumer you can buy or not buy. College students are over 18. How about some personal responsibility?

    Also, it annoys me when people talk about banks as a single person. Banks employ hundreds of thousands of people – IT support, tellers, etc. Bonks’ shareholders include everyone who has index funds in their 401K portfolio; banks bondholders are regular people too – any bond index in your 401K? When banks are hurting so do all of us.

  32. Georgia says:

    I was, at one time, deep in cc debt. I paid it off. My husband and I would not consider bankruptcy at all. We made the bills, we would pay them.

    Now, I am debt free and still use 2 cc’s exclusively. I put all the charges on them that I can. To date Citi has paid me, in the last 5 years, from $12-1500 and Chase, which I opened about 8-10 months ago, just sent me a check for $250. In all that time I have never paid them a cent of interest. So the above money was free. That gives me a mighty big incentive to pay the bill off each month. And, I am a stage in life where big purchases are not a normal event. I do have enough in savings to pay cash for a good used car and enough to take a trip or two each year.

    Cc’s also make my life easier because I do not have to write dozens of checks and send them off. Each month I get a statement that tells me of all my purchase’s and a categorized statement at the end of the year.

    As someone else pointed out, cc’s also protect your card. In January I had 4 purchases I did not make. My cc had never left my possession. I called Citi and they told me of 3 more charges pending, which were also not mine. They immediately cancelled my card and sent another one to me. I owed them nothing. They withdrew the charges and started an investigation. Lucky for me that I check my statements on the computer every 2-3 days, or daily now.

  33. Helix says:

    To whoever said Amex charges interest whether or not you pay it off – not true as far as I can tell. I’ve had an Amex Blue Cash for a few months now, pay it off every week, and have not had any finance charges. I verified the policy with them before I applied for the card.

    I like using the card and look forward to the days when I’ll get 5% cash back on groceries and gas (you have to spend $6,500 first, so I guess I’m not entirely looking forward to it in that regard). I’ve found it easier to manage my finances putting regular expenditures on the Amex card and paying it off each week.

    You do need to be careful, as with anything else, but I’m an excel nerd and keep a running day to day budget going so that helps.

  34. Diane says:

    Great job of explaining the differences between credit cards, debt cards and charge cards.

    I pay off my credit cards every month. I also take advantage of any cash back by charging other monthly bills to my credit card, i.e. cell phone and cable bills. I would have to pay these bills anyway and I might as well get a small discount by charging them to my credit card.

  35. JT says:

    I’ve used Amex charge card for years and love it. The annual fee (for the gold card) is $125, but each dollar equals one reward point. They can typically be redeemed at a ratio of one hundred points to one dollar – so if you charge more than $12,500 per year on it (and you can if you consolidate everything on it, gas, food, insurance, etc.) you usually make money even with the annual fee.

    Plus their other perks (free roadside assistance, purchase protection, warranty extension) are great too.

  36. In Denmark we have something called a Dankort (Dancard), which is a debit card (but credit is possible too) that can be used in all shops both IRL and Online. We are 5 mill inhabitants in Denmark and make 700 mill transactions each year and a total of 250 billion kroner using this card.
    The card is free and there are no fees for using it.
    Almost all above the age of 18 have one, and below 18 you can get a special version where no credit is possible.
    The card is often combined with a Visa (in the same card) so that it can be used abroad.
    It has existed since 1984, and the Danes hardly ever carry any cash, because of that card

  37. Bryan says:

    @Helix

    I am the one. Read the credit agreement. You pay interest on average daily balance over the month. If you pay it off every week this may make the interest they would charge you below the level which they have agreed is the lowest level of finance charge they will charge you.

    Again, I have nothing against Amex Blue, I love the card and have had it longer than any other credit card I have (well over ten years).

    But, that being said, I still find the charge cards are a better value, even with the annual fee. It all depends, however, on your personal financial situation. Just like socket wrenches, one size does not fit all.

  38. kitty says:

    @Bryan – read the part in the license agreement that talks about the GRACE PERIOD. It clearly states that interest doesn’t start to occur until after the grace period expires. Yes, if you have some balance after the grace period expires, average balance start coming into play, and all the nasty things start happening.

    Think about it. Do you really believe that Helix and those of us who pay our balances in full every month don’t know if we are paying interest of not? When you get the bill, all purchases are listed as well as any charges or interest. Do you seriously think we are stupid enough not to distinguish $0 for interest and charges fields from some number that is greater than 0. Do you think we are all idiots? Do you think we cannot add up the value of our purchases and compare it with the bill amount? I’ve been using credit cards for 20+ years, I’ve never paid a penny in interest. I have a math degree, do you really think I cannot add up the value of my purchases and compare it with the amount of the bill to see if I am not paying more than I should?

    You don’t need to pay weekly either. I never do. Why would I? I want my full grace period worth of interest that my money earn in a bank. What I do instead is use automatic payment of the full balance. On the due date, the credit card issuer takes the full bill amount from my checking. Sometimes they take it a couple of days later, but since I signed the automatic payment agreement, it is their responsibility. Yes, I still verify that all charges are correct and that they took only the amount of purchases from my checking and not a penny more, even if they took their time with actually taking the money.

  39. kitty says:

    @Bryant – if you don’t believe me, call any credit card issuer and ask if you pay any interest on charges paid off BEFORE THE GRACE PERIOD EXPIRES.

  40. Bill Pittman says:

    Use a credit card but pay the balance off every month. This way you get all the advantages and none of the disadvantages.

  41. kitty says:

    @Bryant: Here is a page for understanding grace periods: http://home3.americanexpress.com/corp/consumerinfo/grace.asp
    Notice that for cards with TYPICAL grace periods, “Has an average daily balance including new purchases as the balance calculation method. This means you pay interest on all new purchases immediately, UNLESS YOU HAVE PAID YOUR PREVIOUS MONTH’S BILL IN FULL.”
    The last part that I emphasized is the key here. You pay no interest on new purchases as long as you always pay off full balance. Once you fail to do it, you get interest on new purchases as well (with a typical grace period). To get out of this, you have to reset your balance back to zero.

  42. Dave says:

    Following up on Helix’s comment about Amex Blue Cash…
    My wife and I have two credit cards and place EVERY SINGLE EXPENSE on those cards. We have a Chase Rewards card (5% on Gas/Groceries/Drug Stores) and the Amex Blue Cash. Unfortunately we can’t put our home or car payments on the cards too! Until we hit $6500 on the Amex Blue Cash we use the Chase card for all GG&DS purchases and the AMEX for everything else. Once $6500 of purchases have been made on the AMEX then we just use that for everything. No limit on the cash back and 1.5% back on non-GG&DS purchases in addition to no annual fee really does make Blue Cash a winner. We literally get paid $800/year to use credit cards (I’m not exagerating that number). We are people that pay off the entire amount due every month so this obviously works for us. IMHO, if you are capable of paying your balance in full every month it is financially irresponsible of you to NOT use a rewards credit card.

  43. Brian says:

    I too can attest to the superior customer service and buyer protection offered by AMEX when dealing with repairs or disputing a charge.

    More concerning are problems with debit/check cards and cashier mistakes. On 2 occasions I have had cashiers ring up my amount incorrectly when punching in the payment numbers. Once was a charge of $240 that was mistakenly rung up for $2400! On a debit card, that money is gone from the moment the cashier enters in the number, to the time the business processes the voided transaction (up to 2 weeks). I caught both mistakes immediately, but was still without the use of my money for a substantial amount of time. I no longer use debit cards for any purchases, preferring the consumer protection of AMEX.

  44. kitty says:

    One other thing about AmEx which is not advertised very well: it doubles manufacturer warranty on purchases made with this card. Haven’t had a need to call them up on this yet, but just in case I currently use AmEx on all purchases where free extended warranty can help. There are some other cards that do it too apparently.

  45. Helix says:

    I think all cards base finance charges on the average daily balance, but as folks here have said the grace period is what saves us. I definitely would have noticed interest charges on the Amex since the sole reason I got it was to earn rewards but without paying any interest/fees.

    ‘Twas a sad day for me when my apartment complex stopped accepting credit cards to pay rent; I’d have hit that $6500 in short order! :) Unfortunately I think Amex might view my main grocery store as a “club” so I’ll just get the 1.5% cash back instead of 5%… anyone have any suggestions on that one? I go to Shopper’s stores in the DC metro area.

    I know I’d save more money by paying monthly instead of weekly but I just don’t trust myself that much yet!

  46. Beth says:

    re: ” If you are disciplined, able to pay off your credit card every month, and your checking account pays interest, you’re better off paying with credit than debit so that money can sit in the bank earning interest over the course of the month.” PLUS, you have federal consumer protection if you pay with credit card.

  47. Beth says:

    re: “Certain banks pushed credit cards like drug dealers”–and they MADE me write bad checks! (just kidding)

  48. brandon says:

    Matt Cullen: Change banks. You should not be charged to make debit purchases.

  49. Rebecca says:

    re: debit cards “It does not allow you to buy things that you don’t have the money for.” When debit cards were first introduced, they advertised this idea heavily. However it is no longer true. My bank (and three others I called and asked curious about the issue) say that the money does not come out immediately and your balance is not checked. Also I agree that you have little protection when you use a PIN (and the banks used to tell us the PIN was safer than a signature)and the burden of proof of an unauthorized charge is on the customer- even when a PIN is not used.

  50. Timmy says:

    I racked up $50,000 in credit card charges. 8 years and probably around $8000 in interest payments later, they were all paid off. I now use that Amex Platinum charge card you are talking about exclusively. The fact that I have to pay off the balance in full every month, made me a cautious spender. Also the perks! Just got upgraded two nights at the Ritz-Carlton, 4 pm late checkout, $100 food credit, and free breakfast for 2 each morning. Also got to use airport lounges for free on two of my flights, and another free room upgrade at a Sheraton. Called my card concierge and they got me into a fully booked restaurant once and another time took me straight into a lounge that had about 40 people waiting in line. Lounge host called me by name :) $450 annual fee…. already paid for by all those perks, many times over. Plus, I probably would have been paying that every year in interest payments carrying a balance on my credit cards.

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