Your guide to credit cards without tears

Of all the changes taking place in the way we manage and spend our money over the past decade, probably the most explosive has been the growth in credit card usage. In 1990 there were only about 80 different cards available; now there are some 1,200. In 1993 they accounted for 10 per cent of high-street spending; by last year this had risen to 16 per cent. We spend more than pounds 60bn each year with our cards and the average annual spend per cardholder is more than pounds 1,500.

David Joy, an economist at the Credit Card Research Group, says: "The explanation for this [growth] is very simple: it's about convenience. Cards make shopping easier, and 40 per cent of cardholders clear their card debts before incurring any interest charges."

This is particularly true at Christmas. Card spending in December rises by 25 per cent. "The number and value of purchases goes up as we buy presents. For many, the alternative would be carrying several hundred pounds in cash which can be stolen or lost," says Mr Joy.

Good news for consumers is that competition - new providers include cheap "no frill" cards from US firms such as MBNA, and supermarkets such as Sainsbury's - has brought charges down. For instance, many cards have scrapped annual fees. These are cash charges just for having a card - although many issuers offer ways of avoiding the fee. For instance, Abbey National retains a fee of pounds 9.50, but waives it for customers paying pounds 500 or more each month into an account with the bank.

Competition has also pushed down interest rates. New cards are often launched at a discounted rate: Capital One's "Premier" card charges just 0.565 per cent per month on outstanding balances until July 1999.

But sifting through the mountain of sales literature sent out by card companies just to find the best deal might just prevent you seeing the wood for the trees. If you are choosing a card, start by trying to be honest about your spending habits.

Most importantly, you need to decide whether you will be able to afford to pay off outstanding balances on the card at the end of each month. If you can't, then you may just be treating your card as an alternative credit source, and paying hefty interest to do so.

If you do use cards as an alternative source of credit, never quite clearing your monthly balances, you should consider switching to a card with no interest-free period, but a lower rate of interest charged on purchases from when they are made.

The next stage is to understand how cards make their money. Most offer an "interest-free" period - usually of 51 to 57 days - in which you can clear any balance on the card without incurring interest charges.

But the basis on which interest charges are calculated can vary. For instance, some cards charge from the date an item is purchased if the account is not cleared in full within the interest-free period. Others only charge from the date they send out a statement. Some charge interest from the date an item is charged to an account, usually a couple of days after purchase. Also, most cards charge more for cash withdrawals than outright purchases.

Then come a plethora of perks, ranging from free insurance on whatever you buy until you carry it home, to collecting air miles or discounts on staying at a health farm.

Some providers argue that low interest charges are not the only basis for choosing between cards. They offer a range of services and discounts. For instance, Barclaycard says it can save cardholders up to 15 per cent on gas and electricity bills through its partnership with Eastern Group, the energy provider.