When it comes to making purchases there are of course lots of ways to do it. While cash is almost always an option it may not always be convenient and it makes it more difficult to track your spending the way that a charge card, credit card or debit card can.

Most people probably know what a debit card is, but many people tend to use the terms charge card and a credit card interchangeably.

Is there really a difference?

Here’s a quick break down listing them in order of my favorite option to least favorite.

First Choice, Charge Card

If you can get one, consider using a charge card for most of your everyday purchases. Find one with a good rewards program, and be sure to monitor your spending so you have enough to pay it off at the end of the month.

Charge Card (How it Works)

Allows you to make purchases where the card is accepted, but usually requires you to pay off your balance in full each month. Charges are approved as they occur. Spending limit is usually based on your past credit and payment history. Just like credit cards, charge cards also offer rewards programs for spending on the card. Charge cards can be more difficult to get because they have higher credit score and income requirements.

Advantages of a Charge Card

  • Often there are no preset spending limits
  • Rewards programs are typically available and may be better than credit cards
  • Consumer protection

Disadvantages of a Charge Card

  • Balance must be paid off every month
  • May be higher annual fee compared to other cards

Second Choice, Credit Card

A credit card with a good rewards program would be my second choice. Don’t let balances linger, be sure to pay off your balance each month to avoid getting hit with interest charges

Credit Card (How it Works)

Allows you to make purchases where the card is accepted up to a predetermined spending limit. A minimum payment is due each month based on the outstanding balance and any finance charges. Any balances not paid by the due date incur interest charges.

Advantages of a Credit Card

  • Flexibility of not having to pay off the entire balance at the end of the month
  • Rewards programs are typically available, but may not be a great as charge cards
  • Consumer protection

Disadvantages of a Credit Card

  • Interest charges can be high and can really add up
  • Pre-set spending limit

How do they calculate my minimum payment?

Your minimum payment may vary from card to card, but generally you minimum payment will be 1-3% of your outstanding balance plus any outstanding interest charges and fees.

For Example…

If you had an outstanding balance of $10,000 you could expect your minimum payment to be about $100 to $300 per month.

Third Choice, Debit Card.

Allows you to make purchases where the card is accepted up to the available balance in your checking or savings account where the debit card is drawn from.

Debit cards may leave you more exposed to fraud versus a credit or charge card. If someone gets ahold of your debit card and makes a bunch of purchases you may have a hard time getting that money back. Credit cards often have a zero fraud liability clause built into the card.

Advantages of a Debit Card

  • Credit score is typically not a factor
  • Rewards programs may be available, but usually not nearly as good as what you would find with Charge cards or credit cards
  • No interest charges
  • Often no fee

Disadvantages of a Credit Card

  • Spending is limited to your available account balance
  • Consumer protection usually not nearly as good as with charge cards or credit cards

Debit Card Tips

If you are going to use a debit card, use one on an account that is not attached to your primary checking, and keep a low balance in the account. That way if someone does get ahold of your card, the risk is limited to the amount you have in the account, and its not going to cause you to bounce a bunch of checks.

Using your Debit Card as a Credit vs Debit

Many debit cards come with a visa or master card logo, so you can use your debit card just like you would use a credit card, without having to enter your pin.

So whats the difference?

First of all, using your debit card as a credit transaction, may give you more protection similar to a regular credit card, which is why I always recommend using it this way if you have the option. Check with your account service department to find out the rules for sure.

The other difference has to do with when the transaction is actually processed.

  • When you use your card with your pin number the transaction is processed immediately and the transaction is deducted from your account balance right then and there.

  • When you swipe your account as credit, the transaction usually gets batch processed at the end of the day. You should always keep track of your balance. Because the transaction is processed at the end of the day, it is possible to overdraw your account.

FYI: Merchants pay a higher fee when you run your debit card through as credit instead of as a debit using your pin.


The biggest takeaway here is to use what works for you. For some that might be using good old fashioned cash. If you’re the type of person that finds it just too easy to spend money using plastic, then you might be better off going on a cash budget.

How it works…

Figure out how much money you would like to spend each week on things like groceries, entertainment or other shopping. At the beginning of the week, simply withdrawal the amount of cash you need for your budget. When it’s gone it’s gone. This will require you to be thinking ahead about how much week you have left and what necessities you still need to purchase.

Track your Spending and Use a Budget!

Whatever method you use for your spending it is important to track your spending and map out a budget. Going on a budget may seem restrictive and put a damper on the amount of fun you have. I believe the opposite is true!

For example…

If you have a budget that says you have money for shopping or going out for a fun night with friends, now you can spend that money freely without worry or stress that you should be spending that money on something else.

I Hope that helps!

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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes.

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