Credit cards are issued by banks under the umbrella of familiar companies such as Visa, MasterCard and Discover. Credit cards have a revolving debt cycle, which means that in each billing period you can spend up to a set credit limit and pay back some—at least the minimum payment listed on the bill—or all of the money spent. If you pay the entire bill, that’s all you pay, but if you only pay part of the bill, you will owe interest on the remaining amount.

Since interest rates vary, it is important to read the fine print very carefully before signing up for a credit card. Fixed rate cards are the most common. The typical rate is 14 percent, with some lower, some higher. With variable rate cards, the rate is tied to the prime rate, with the addition of an extra 6 to 9 per cent. Variable rate cards make sense when the prime is low but become less attractive with a rising prime rate. Cards that offer an introductory zero or very low rate for a fixed period jump to an indexed or fixed rate when that period is over.

Again, before signing up for a credit card, be sure to read all the fine print carefully. You need to know about interest rates, but also about late fees, over-the limit fees, charges for cash advances, how interest is calculated—on new purchases when made or after a “grace” period—even what it might cost not to use the card, since some cards carry a minor fee for non-use over a given period of time.

“Charge” cards, like American Express, require the balance to be paid in full each billing period. (Note: some American Express cards now allow revolving “credit” billing for certain expenses.) These cards are ideal for purchases you intend to pay for immediately, but not for large expenditures you want to pay for over time.

Store cards used to be “charge” cards, but most now operate like credit cards—and be sure to check the interest rates—except that they can only be used at the issuing store or chain of stores. That means your Home Depot card only works for purchases at Home Depot, not at Sears or Target or anywhere else. The proliferation of store cards may be one reason so many families carry a number of different cards. To add to the confusion, some stores now issue credit cards that can be used more widely.

Debit cards draw funds directly, and immediately, from your checking account, just as paper checks do. Increasingly consumers find debit cards more convenient than checks or cash for groceries, gas and other small, but routine, purchases plus a little extra cash. Debit cards are so easy to use that, unless you keep a hefty balance and careful track of how much you spend—just as you should with paper checks—checking accounts are easily overdrawn. Banks now charge overdraft fees, just as they do for bounced checks.