A charge card that charges interest? Stay away

American Express logo

American Express wants to reward you for learning a bad habit.

It's dangling reward points for its existing charge card customers who enroll by June 30 in a program that essentially transforms their plastic into a credit card.

This is a bad idea.

Charge cards and credit cards are like twins: They look the same, but once you get to know them, you realize they have significant differences.

With a credit card, you can carry a balance from month to month. For the privilege of doing so, you’ll pay interest on your balance. If you don’t carry a balance, you don’t pay interest.

A charge card has the same conveniences and protections as a credit card, but it doesn’t give you the option to accumulate debt. You’re required to pay your balance in full each month. As a result, you don’t pay any interest.

If you don’t pay your charge card balance in full, however, there are consequences, starting with late payment fees and escalating to shutting down your account.

At least, that’s how charge cards used to work.

But American Express has several options allowing charge card holders to buy now and pay more later. And it’s offering customers a carrot to sign up for one such program called the Extended Payment Option.

The bonus is 5,000 rewards points, worth about $40 to $50 depending on how you redeem the points.

Points can be redeemed for air travel, hotel stays, car rentals, gift cards, dining and entertainment, and the other usual suspects.

The Extended Payment Option essentially turns your charge card into a credit card, with a confusing twist: It only gives you extended time to pay on purchases of $100 or more. Smaller purchases and cash transactions aren’t eligible for this feature.

The result would seem to be a complicated monthly statement showing a set of charges you have to pay in full right away and another set of charges that you can pay off over time, with interest.

American Express says your statement will clearly identify the charges you can choose to pay off over time, which seems to be true based on this sample statement.

But that's the easy part. Understanding how the program actually works is the hard part.

Don’t be fooled by the words, "It’s fee-free!" on the program’s enrollment page. This statement just means that you don’t have to pay to sign up for the Extended Payment Option.

You will pay interest on the balance you carry. And that interest will quickly eat into the reward you earn for signing up for this program.

Your annual percentage rate will be based on your creditworthiness. Expect to pay typical credit card rates. Right now, reward card interest rates are about 15%.

The promotion’s webpage says one of the reasons you might want to add this feature is that the card won’t charge you interest on your entire balance.

Perhaps there are some small savings to be had here. If you carry a balance on a credit card, you lose the grace period; you pay interest on all your purchases from the moment you charge them, no matter how small.

With American Express’s extended payment option, you essentially retain your grace period on small purchases while only paying interest on larger purchases.

Most people already have enough trouble understanding how plastic works.

Why confuse yourself by trying to combine the features of both a charge card and a credit card in a single card?