Have you met someone whose wallet is packed with cards used for shopping, cash advance, paying bills, and the likes? You must have thought that all of those were credit cards. The truth of the matter is not all of those shiny pieces of plastic cards are credit cards. Only some of those cards are true credit cards while the rest are either charge cards or debit cards.

True credit cards have a fixed spending or credit limit. This limit is based on the cardholders income and credit rating. Upon application, the higher the income and the richer the bank account, the higher the possibility that an applicant is granted a credit card w/ a high credit limits. The credit limit also increases as the cardholder spends more. But it decreases if one chronically makes late payments. Prolonged missed payments also results to credit being cut off and increased interest rate charges on the outstanding debt.

Shop carefully when selecting for a new credit card. Check the annual fees, interest rates, as well as the uses of such card. Some have no annual fee while others have high interest rates, and still others are accepted anywhere or limited to shopping and for dining only. Banks are known for offering easy-to-apply-for credit cards. However if you do not have a rich bank account there are companies that offer secured cards. With such card, you deposit money and you can obtain a card which has a limit that is equal to the money deposited. The deposit eventually earns interest and is usually refundable once you establish a good credit rating.

Charge cards such as American express do not have a monthly spending limit. You can purchase and shop – til you drop but upon payment there is no such thing about minimum payment; rather you need to pay the balance in full each month. Charge cards impose a yearly fee. Many consumers, however, believe that despite of any fees or charges, the cost of having charge cards is still lower than having a credit card.

Debit cards technically work like plastic checks. Cards like these are usually released by Visa and MasterCard affiliates. When paying purchases using debit cards, the payment is taken directly from the cardholders bank account. Debit cards come in two forms- Online and Offline.

Online debit cards are like ATM cards. They require you to enter a pin for you to be able to pay for your purchases. Most banks now always release ATM cards that employ the so-called (Electronic Payment Services) EPS system. These allow the cardholder to pay purchases through their ATM.

An Offline debit card, on the other hand, does not require a PIN. In lieu of the PIN, it only requires the signature of the cardholder to initiate the transfer of the funds from the cardholders account to the merchants account.

Debit cards are highly recommended for shopaholics and impulsive buyers. They have no monthly bills, no interest charges, and no fees.

The power and perils of putting plastic into your wallet is a convenient way of making purchases without the hassle of carrying cash. Additional perks offered by credit cards and charge cards, can earn you airline miles or a variety of other rewards for purchasing items that you would have brought anyway.

From a financial perspective, debit and charge cards pose little danger to your financial well being because of their internal controls that minimizes the temptation to make purchases that you can’t afford.

Credit cards have served as the source of financial ruin for careless shoppers. They encourage consumers to live beyond there means. To avoid the potential pitfalls that go with credit card use, be mindful of your spending habits. Remember that being able to make the minimum monthly payment simply means that buying an item not only will put you in debt, but the interest will increase the total cost of the item to well beyond the sticker price.