Credit, debit or charge?

In today’s fast-paced world, credit, debit and charge cards have become an integral part of our day to day financial lives.

If you are a working Canadian, a busy stay-at-home mom or perhaps retired, these three types of cards are a common place item in your daily lives.

As a society, we have long outgrown the desire or need to just use cash.

Do you know the difference between your credit, debit and charge card?

Does it make a difference which card you use for purchases? Credit cards A credit card is borrowed money, like a loan.

When you are issued a credit card, the company gives you a specific credit limit.

Each month, you are required to pay back a portion of that loan amount to the company.

MasterCard and Visa are the most recognized examples of major credit cards.

You can make purchases without actually having the cash in your bank account.

You also have time to pay back this money, but a minimum payment is required each month.

Some cards give your reward points while others give you cash back based on your purchases.

Most credit cards offer protection against fraudulent purchases made on your account if your card is stolen or lost.

The disadvantage of credit cards is the ease of making the purchases without having the means to pay off the balance owing each month.

Unpaid balances attract high interest charges.

Sometimes it is just too easy to make a purchase with a credit card.

The pain comes later when the monthly statement arrives and, if not paid in full, interest charges accrue quickly. Debit cards A debit card is directly linked to your chequing or savings bank account.

You cannot make a purchase with your debit card unless you actually have the funds in your account.

You need to monitor your bank account to make sure you have sufficient funds for purchases.

If your card is stolen, you have limited recourse against unauthorized purchases.

Many banks and merchants charge transactions fees each time you use your debit card.

Some merchants have a minimum purchase amount before they accept them for payment. Charge cards Charge cards are similar to credit cards but most issuers require you to repay the outstanding balance in full each month.

Some charge cards may have membership fees, such as American Express.

Major store chains also issue their own cards, such as Hudson’s Bay and Sears.

Cash back and bonus programs can also be a perk of owing a charge card.

The disadvantage of charge cards is the membership fees may outweigh the benefit of using the card.

Normally you need a good credit rating before you are issued a charge card. Credit and charge cards These cards are very profitable to the companies that issue them.

Did you know interest charged on some cards amounts to over 50 per cent of the profits earned by banks or institutions that issue them?

Some companies also charge annual fees, late fees, merchant fees, and service fees when you use their brand of card.

Interest charged on your credit card may range from 17 to to 18.5 per cent or higher.

While some cards have special introductory rates for three to six months, the higher interest rates usually apply for any cash advances and those purchases made after the honeymoon period.

Each card provides convenience, some security and ease of use.

It is up to you to decide where and when you use your cards.

Knowing the differences between credit, debit and charge cards can help you manage your money for both for business and personal use.