The Differences Between Charge Cards, Credit Cards and Debit Cards
I think it would be helpful to point out the distinctions between credit cards, debit cards and charge cards. While they are similar in some ways, they are quite different in others. They all were created to serve distinct financial functions. Just as clothing is not a one-size-fits-all entity, these instruments of commerce are also tailored to the individual needs of the consumer. Let’s take a closer look at how each one works.
Charge Cards
Charge cards act very much like credit cards as far as purchases go with one major exception – unlike credit cards where you can carry a balance from one month to the next and pay off your card over time, a charge card must be paid off in full at the end of every billing cycle.
Examples of charge cards include the American Express Platinum Card, the American Express Preferred Rewards Green Card and the American Express Preferred Rewards Gold Card Platinum Card. The advantage of using a charge card is of course, that you will not be paying any interest because you will be paying your bill in full every month.
Credit Cards
With credit cards the cardholder is given a set line of credit that they cannot exceed. They may take advantage of their credit limit as long as they remain an account holder in good standing. At least the minimum payment must be made at the conclusion of each billing cycle and you can pay it in full if you wish to avoid paying interest.
You can liken credit cards to consumer loans. Banks and credit card companies extend a line of credit to the account holder. Cardholders are charged interest on the outstanding balance that they owe and will continue to pay the APR determined by the credit card issuers until the balance is paid in full. This is called revolving credit. This is where the credit card companies make most of their money.
Debit Cards
While credit cards and charge cards have a great many similarities, debit cards and the transactions made with them are quite different. With debit cards the cardholder is using their own money, usually linked to their checking account, as opposed to being extended credit from a bank or credit card issuer.
You can spend up to whatever your checking account balance will allow. Advantages of using a debit card include not having to carry cash or a check book. They also allow you to withdraw cash from an ATM on demand and you can purchase goods and services at just about any place that credit cards are accepted.
Related Information:
- Credit Cards vs. Debit Cards vs. Charge Cards A quick and clean explanation of the differences between credit cards, debit cards and charge cards....
- The Differences Between Credit Cards, Debit Cards and Charge Cards A video that explains how debit cards, credit cards and charge cards are different....
- The Pros and Cons of Using Debit Cards Find out what the advantages and disadvantages of using debit cards are in this informational piece....
- Credit, Debit, or Cash – The Best Way to Pay See the advantages and disadvantages of using credit cards vs. debit cards....