I recently received this question from a reader:
I have been hearing a lot about the comeback of the charge card. What is a charge card? Is it difference from a credit card?
There is no denying the convenience of plastic money. However, even though a debit card is preferred by many, the debit card lacks a number of advantages and protections available withe a credit card. Many people, though, are justly concerned about the potential for problems with using a credit card. Is there some sort of happy medium? Actually, there is. It’s called a charge card. The charge card was the forerunner to the credit card, but it never completely went away.
I received a recent email on behalf of American Express with helpful information about one of the main differences between a charge card and a credit card:
Many consumers use the terms “charge” and “credit” interchangeably and are unaware that there are differences between Charge cards and Credit cards. For example, American Express has a Charge Card program that helps consumers spend within their means because the total balance is due in full at the end of each month. Meanwhile, unlike credit, with Charge consumers aren’t paying 10 times more in accrued interest fees.
A charge card is plastic money in which the balance must be paid off each month, so you have to have the funds available. (There is often an annual fee in order to make up for the fact that charge cards don’t collect interest, but it’s not that horrible.) But there are also credit card like features that include:
- Purchase protection.
- The ability to build a credit history.
A charge card, if you don’t mind paying the annual fee, can be a happy medium between debit and credit, bridging the gap and allowing you to avoid debt while still retaining some of the more valuable and desirable advantages often associated with credit cards.
Image source: Fish Train