April 7th, 2010
Wednesday Trends in Credit Cards & Debt
Having financial difficulties filing your taxes by the upcoming April 15th due date? You could pay your taxes by using a credit card, however, The Sun’s Financial Diary suggests this is not your best alternative. By using any of the official partners authorized by the IRS to provide credit card payment services for taxpayers, you will end up paying more in convenience charges than what’s worth the extra time you get for paying by credit.
Racking up rewards through a generous rewards card is the best way to maximize benefits in this option if you are going to opt for it; just remember that you’ll be putting a big charge on your credit card that could ding your credit score and heap high interest onto your balance if you don’t pay it off in full right away.
For more on credit card news and debt talk, here’s today’s roundup!
December 18th, 2009
Credit Card or Charge Card: What is the Difference?
A credit card and charge card may function very similarly, but their crucial differences will determine which one is the best fit for your wallet and your particular credit usage.
At its simplest, a charge card is a credit card that cardholders are required to pay off in full every month while still providing the benefits of regular credit cards. Charge cards offer cardholders a line of credit, great rewards programs, as well as cardholder service and protection. Charge cards are reported to the credit bureaus and will damage your credit score if you don’t pay on-time or in full.
The key difference between the two is that a charge card must be paid off in full every month, whereas a credit card can carry revolving debt. This difference between the long-term credit line of a credit card and the short-term credit line of a charge card has several implications:
- With a credit card, you have the flexibility to determine your monthly payments as long as it is at least the minimum amount. Being able to pay the balance over time is a more affordable, practical option if your financial situation can change month to month. On the other hand, a charge card’s required full monthly payment saves you from growing debt, but can it be a financial burden if you can’t make the full payment and are charged expensive penalties.
- Credit cards profit off of cardholder through interest charges in recompense for the privilege of carrying a balance. While charge cards do not have interest rates, they charge an annual fee to make money. Fees range from American Express Zync’s $25 fee all the way up to American Express Platinum’s $450 fee.
- A charge card has no preset spending limit, so in theory, you can spend whatever you want on it as long as you still pay your balance in full. However, that doesn’t mean you can go out and purchase a yacht. The issuer will assess your credit history, spending history and annual income and measures your transactions against your credit profile; they can limit your spending privileges if it seems like you are at risk of overspending and defaulting on payment. If you neglect to pay off the whole balance each month, you’ll be subject to expensive penalties and your issuer may cut your privileges completely. A credit card’s credit limit is determined by the issuer, depending on the cardholder’s credit standing.
There are some hang-ups to getting a charge card, like being financially secure enough to consistently pay off your balance in full every month and paying an annual fee. But if you can deal with these card terms, you get the freedom of unlimited spending limit, the no-hassle deal of a short-term loan with no interest, and some great rewards and customer service like American Express’ Membership Rewards First program. If you are assessing which card works for you, it boils down to affordability and practicality—if you can’t afford a charge card or don’t need an unlimited credit limit, you’re better off sticking to a regular credit card.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
December 16th, 2009
American Express Zync Review
American Express introduced the Zync charge card to the 20-something crowd as the latest option in the ever-growing arsenal of plastic for young consumers. This hip addition to American Express’ charge card family, which includes the Green, Gold, and Platinum Card, offers younger consumers a low $25 annual fee, a unique and customizable reward program, and the practicality of the card as a “financially responsible” way to spend.
What makes a charge card different from a credit card is that cardholders must pay off balances in full every month. This enables the cardholder to avoid interest charges and also limits ongoing overspending by restricting cardholders from carrying a balance month-to-month or growing a balance month over month. The Zync comes with the basic American Express Membership Rewards Points Program which earns cardholders one point for every dollar spent. To maximize rewards users are offered four different lifestyle packs, each costing an incremental $20 annual fee, that enable cardholders to double points for spending in certain categories. The Go pack offers double points when you spend on airfare and travel offers, the Social pack for restaurants or special events, the Connect for mobile and cable services, and the Eco Pack, the only charge-free pack, for eco-friendly retailers.
On average, cardholders between 18 and 25 carry a credit card balance of $2,566 monthly in debt (to be linked to Nov Credit Climate). Zync can function as credit training wheels with rewards, which many young consumers need to establish responsible spending habits while foregoing monthly interest charges. One of the primary incentives for young consumers considering the Zync charge card is that the terms of the card promote using credit regularly, establishing an on-time payment history, and managing credit utilization, all of which builds a solid foundation for a healthy credit score and credit report.
Servicing the younger consumer can often present a double-edged sword. While they want to have good credit and spend responsibly, the reality is many young consumers often spend what they don’t have. From textbooks to big-screen TVs, young shoppers can be spontaneous at times and for this, the young consumer may need a credit card. Comparing American Express charge cards and credit cards, there is little difference in annual fees and rewards, and assuming a consumer can get approved for a credit card, the American Express Zync may be a difficult sell.
For American Express Zync, the question remains is responsible spending in favor over free spending? Will the credit-conscious functionality of a charge card appeal to young consumers over the freedom of spend and pay when you can of a credit card?
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
