Welcome to the post-recession credit market, where banks are paranoid about lending, consumers are wary of fees and everyone’s keeping a closer eye on their credit rating. In this new dawn of shell-shocked borrowing, many card carrying consumerists are reconsidering revolving credit, while others are merely treading very, very carefully. What do you carry? Credit? Debit? Charge? To a cashier, it’s all the same (as long as you punch the right button when prompted) – but depending on your spending habits, it can mean a world of difference to your bank account and your credit score. Read on for a brief guide to all the latest fall fashions in plastic…

Credit Cards

You know all about credit cards now. It’s that 3 1/8x 2 1/8 inch piece of plastic in your wallet that is your passport to increased spending power or a downward spiral of crippling debt. Credit cards give you the longest leash of the three options, but oftentimes, this is just enough rope to hang yourself with. Let’s look at some of the pros and cons.

Advantages of Credit Cards

• Let’s you carry a balance – A true “buy now, pay later” option.
• Convenient – Purchases are a swipe away with exact change every time.  No one will force you to carry those ridiculous pennies around.
• Secure – Some thug grabs your purse with $300 cash in it and you’re boned. On the other hand, if a hacker lifts your digits from an unsecure website and you catch it, you’re only liable for up to $50 in fraudulent purchases (if that).
• Rewards – Racking up points towards big discounts or your next vacation makes spending feel nice. If you play your cards right, it can be quite lucrative.
• Builds your credit score – You’ve gotta start somewhere. Being a responsible credit card user can set the stage for an excellent credit rating for when it comes time to finance a home or car.

Disadvantages of Credit Cards

• Those finance fees add up – The saying really should be, “Buy now, pay more later.” That $299 ASUS EEE PC will actually cost you $358 if you pay the minimum payment at an interest rate of 18%.
• Convenient – Wait, wasn’t this a pro? It’s a con, too. With a hefty credit line at your disposal, the only thing standing between you and an impulse buy is willpower. And if that fails you, you’ll have a nice, shiny widget that you can’t afford along with interest you can’t afford.
• Minefield of Fees – Finance charges are the bread and butter of credit card profitability, but that doesn’t mean that there isn’t  full featured menu of other sneaky fees and charges that can get put on your tab. Balance transfer fees, cash advance fees, annual fees, reward membership enrollment fees, foreign transactions fees, over-the-limit fees (until Feb. 2010) – the list goes on. Sure, if you are truly blindsided you can usually argue with a customer representative until it gets taken off – but that can be a major drain (not how I like to spend my Monday morning, personally).
• Hurts your credit rating – One late payment or a high debt to credit ratio and your credit history’s got a black eye that’ll take years to fade. Credit cards are a double-edged sword when it comes to building credit.

If credit cards were a ski slope, I’d classify them as a black diamond. In other words, for experts only. The ride is steep and there may be some moguls and an occasional patch of ice. Seasoned skiiers will find it thrilling, but if you’re still snowplowing on the bunny hill, this slope is guaranteed to be a pretty bruising experience.

Debit Cards

Looks like a credit card. Feels like a credit card. Works like a credit card. Hey, it’s even issued by Visa and MasterCard, just like a credit card. But there’s a world of difference between these two lookalikes. Most importantly: if you ain’t go the money, you can’t spend it.

Advantages of Debit Cards

• Safer for your credit rating – You’re not receiving a loan (under normal use) so if you make a mistake, it doesn’t go on your permanent record. You can’t spend more than you have, and if you do, then it’s between you and your bank (who will likely charge you a hefty overdraft fee).
• Convenient – Just as convenient as a credit card. Possibly more so, since you can use it at an ATM to get cash. More importantly, you can get your own cash. You can get a cash advance at an ATM with a credit card, but it’ll cost you much, much more than that $2.50 transaction fee due to a higher than normal interest rate. With a debit card, you pay no interest because you’re not borrowing anything.
• Rewards – Debit cards give you rewards, too. The ways to earn aren’t always as inclusive as with a credit card, but you certainly won’t feel like your spending in vain.
• Secure – Debit cards have the same security features as credit cards.

Disadvantages of Debit Cards

• Can only spend what’s in your account – Debit cards aren’t quite as handy in a pinch, since you can only spend what’s in the checking account that’s directly tied to your card. If you find yourself stranded on the highway with a shot transmission, then you’re either going to have to call your bank to shift around your funds or start washing dishes.
• Fees, fees, fees – Just like the credit card, there’s a whole host of fees related to debit cards. You can avoid overdraft fees (which garners the most complaints)  by either canceling your overdraft protection or simply not overdrawing.
• No good for your credit – You can be a responsible debit card user for a decade and no one’s going to care. When a lender screens you for a loan, they’re going to complain that you don’t have any credit history. If you need to build credit, you may want to consider a basic credit card.

Debit cards are the BB gun of plastic spending. Not quite as deadly as a credit card, but you can still put an eye out if you’re not careful. And without the credit clout, you won’t be taking down any big game with a debit card. But if you’re nervous about wielding a credit card but still want to avoid carrying cash, earn rewards and make online purchases, then a debit card is for you.

Charge Cards

Although it sounds similar, a charge card is not the same as a credit card. You may not have even heard of a charge card – after all, Chase only recently announced its first charge card. Chase’s Ink Bold is the first charge card to be offered by a Visa or MasterCard issuer and it’s mostly geared towards small businesses. Here’s how it works:

Advantages of Charge Cards

• Reduces risk of default – Charge cards must be paid off in full at the end of each month. Because of this, it makes banks a bit more willing to hand them to small businesses and also lowers the chances of a company racking up insurmountable debt.
• No interest – With no balance carried month to month, there’s no interest charge.
• Convenient – Charge cards can be distributed to employees on the road and all be linked to a common account, which makes tracking spending easy on a manager or accountant. This is commonly how fleet cards are used by trucking companies.
• Paperless – Most of these company purchases would normally be paid by check. Charge cards make paying for non-payroll expenses easier and more secure.
• Rewards – Like debit and credit cards, charge cards can accrue rewards, as well. Points can rack up quickly when you have scores of employees out in the field swiping cards.
• Builds credit – Since a purchase on a charge card is, in essence, a very short term loan, you do indeed build credit with it.

Disadvantages of Charge Cards

• Not as much spending power as  a credit card – Businesses need to be careful to only spend what they can afford to pay off at the end of the month. This may demand some tight budgeting.
• All or nothing – Unlike credit cards that let you make a minimum payment and stay in good standing, if you cant’ afford the full balance of your charge card at the end of the month, then you are either in default or liable for a hefty penalty.
• Annual fee – Charge cards are profitable for banks because they have an annual fee. Chase’s Ink Bold has a $95 annual fee, which is waived for the first year.

Charge cards are sort of a middle ground between credit and debit cards. Like the Chase Ink Bold, it’s more geared towards businesses. But if you’d like a little bit more breathing room than a debit card and think you are responsible enough to pay it off each month, it can be a good way to build your credit.

How about you? Have any of our readers ever used a charge card? What other details should a person know about before carrying a charge card? Let us know in the comments.

Related posts:

1. Debit Cards Vs. Credit Cards: Plastic Showdown
2. Understanding Debit vs. Credit With Your Debit Card
3. Why Banks and Credit Unions Charge Fees
4. Credit or Debit? It’s Becoming Harder to Tell the Difference
5. When and Why to Avoid Using Your Debit Card