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Are Charge Cards Nothing But Hype?

December 6th, 2010

AMEX Black CardThe following post was written by Mike from CreditCardForum.com, which is a social media site for the discussion of credit card reviews. When it comes to credit cards, he has two primary goals: (1) to give people the knowledge they need to use them responsibly, and (2) to expose the truth about credit cards since the banks aren’t always forthcoming in explaining things.

During the recession, banks didn’t want to give credit to anyone. But now that the economy has [slightly] improved, they’re back with TV commercials and the whole nine yards, to try and convince you to apply for a new card that you probably don’t even need. One of the things they’re really pushing now is the charge card… but are they actually worth the cost?

Difference between charge card and credit card?
Some people use these terms interchangeably but they are actually two different things. A charge card requires you to pay your balance in full each month. Meanwhile a credit card allows you to carry a balance as long as you make the minimum payment.

Of course the advantage of a charge card is that it prevents you from getting in over your head, since you won’t have the option to rack up debt. But unfortunately, charge cards have annual fees since they can’t make money off the interest.

So when are they worth the fee and when should you avoid them? Here are 3 things to consider…

(1) They’re usually geared towards frequent travelers
I’m sure you’ve seen the commercials lately for the American Express Premier Rewards Gold card which – according to AmEx – is “simply brilliant.” Now I’m not denying that claim, but I don’t think this card would make sense for most people.

For starters, it’s a $175 annual fee and largely what you’re paying for with that is travel benefits. If you don’t travel frequently, it’s probably not worth it. Not even the “3-2-1” rewards program will make up for the annual fee, unless you spend a lot of money!

(2) Business charge cards are geared towards big spenders
I noticed a commercial for the AmEx Plum Card (which is for businesses only) on CNBC the other day. It’s a card that’s actually been out since 2007 but they stopped marketing it during the recession. The commercial plays up the benefits big time, but the truth of the matter is that it will only make sense for businesses that charge a lot (like $5,000 to $10,000+ per month) because the AmEx Plum Card’s annual fee is $185.  Business charge cards from American Express Open can be a good match for businesses that travel extensively.  For a small business that’s a lot, considering that business debit cards can usually be attained for free.

(3) For many the best card is ironically the cheapest one
You would think the best highly advertised Premier Reward Gold card would be the best value, but ironically, AmEx’s $25 annual fee Zync card appears to make the most sense for the average person in my opinion. The Zync card has the Membership Rewards program and other AmEx benefits like purchase protection and extended warranty, but its annual fee is $70 less than the Green Card, $100 less than Gold, and $150 less than Premier Rewards Gold.

Conclusion?
I’m a huge fan of the charge card concept, because it gives you the benefits of a credit card, but without the temptation to go into debt. However I think it’s important to cut through the hype and review the benefits of all of the charge cards before you choose one. There’s simply no point in paying hundreds of dollars for benefits you will hardly ever use.

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