A couple of days ago, I posted this story about a guy who beat debt.  One of his solutions was   “getting a charge card which feels like a debit card (and pays for itself with the amount I spend), so I never trap myself in to thinking I’ll pay things off later.” Emphasis mine.

What Is A Charge Card

Frankly, between debit cards and credit cards and ATM cards, it is easy to forget that there is another type of plastic option, the charge card.

This is a card designed for deadbeats, people who plan on paying their entire balance in full, every month.    Payment in full is required at the end of the month, or a penalty is applied.   Multiple penalties could result in the cancellation of your account.

Typically, the penalty is a flat percentage of your balance, one that is less favorable than had you paid interest on your credit card.

In the United States, American Express still offers their classic charge cards, including the iconic original green card.     Others offering charge cards include Diner’s Club as well as some individual merchants.

What Is The Point Of A Charge Card?

My opinion here is mixed.   First, I am a proud member of the “deadbeat” club.   I treat all of my cards like charge cards in that I pay every balance on time and in full every month.     That said, you would think that I would love the idea, considering it was designed for people like me.   On the other hand, I don’t see the point.    I love my Starwood American Express Card, which is a credit card, and I don’t see the need to have a Charge Card.

Some, like the person I wrote about, view the Charge Card as a hybrid between debit cards and credit cards.    Like a debit card, they do not pay interest, but like a credit card, they do have good insurance, chargeback protections, and rewards.    The only think that really separates it from a credit cards is that the penalties for not paying your bill in full are more severe.

The difference between charge cards and credit cards reminds me of how automobile safety evolved.  At some point in the 50’s auto manufacturers realized that people in car accidents were injured by protruding objects on their steering wheel and dash board.    They then tried constructing them of soft plastics and foam rubber.      Some people wondered if they should have gone the other way, and built sharp, pointy objects in the steering wheel and dash board.    The idea is that, knowing the danger, people will drive extra safe.

For many people, a charge card would merely be a large pointy object on their steering wheel.    They know that the consequences of not paying off their balance will be especially harsh, so they have more incentive to avoid it.

No Preset Spending Limits

Another supposed feature of the charge card is the idea that there is no preset spending limit.    I really don’t put much faith into that claim.   The spending limit might not be “preset” but it is still there.   The difference is that either they do not tell you what it is, or that it is constantly changing.    I suppose another difference is that you cannot be charged an “over the limit” fee.   In that sense, it is a good thing in that the worst they can do is deny your charge.

Ultimately, charge cards are a relic from a bygone era.   I like the idea behind the assumption that you should never carry a balance.    These are words that I live by.    On the other hand, there is no real compelling reason to choose a charge card over a credit card.    In fact, charge cards are more likely to require an annual fee, where as credit card holders usually do not pay them.    I am sure that the credit card issuers are free to waive the annual fee as they know that a certain percentage of card holders will ultimately become “revolvers”; people who carry a balance and pay interest.

This entry was posted on Thursday, August 6th, 2009 at 20:00 and is filed under News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.