Money: Cheque the pitfalls before you sign

You can budget until your friends call you names but still find yourself overdrawn with an unexpected expense such a burst water pipe above the kitchen ceiling. This is where credit cards, for all their faults, come into their own - except that most plumbers don't take them. Don't worry, says Rachel Fixsen, relief is in sight.

The choice today is no longerwaiting until you can afford a plumber and let the ceiling come down or pay an emergency plumber on credit.

A host of credit cards now offer cheques as well. These allow you to write cheques drawn on your credit card account in the same way as on a current account. Because you can use the cheques for many purposes where you cannot pay with the credit card, it makes your credit line more versatile.

People's Bank introduced a cheque option on its credit card earlier this year. Royal Bank of Scotland, Barclays, Beneficial Bank, Save & Prosper/Fleming and MBNA also offer the facility.

In some cases, the interest rate charged on these credit cards can be lower than on other forms of borrowing, so using the cheques to pay off other debts makes even more sense.

Andy Mathias, who runs his own restaurant in Welford, near Leicester, has a People's Bank credit card and says he finds the cheque facility handy. "It's useful to clear any other debts or overdrafts. It controls it all in one swoop and it's a good rate of interest," he says.

When you write a cheque on a credit card account, this is usually treated as a cash withdrawal rather than a purchase. People's Bank charges 18.9 per cent APR on cash advances - not exactly a bargain but still lower than most credit cards and store cards.

The Co-op Bank has an offer on its Visa cheques scheme. Apart from the books of five cheques which are usually available, it is sending a one- off cheque to customers, which carries an interest rate of just 7.9 per cent APR until 31 March 1998.

If you used this to pay off an expensive persistent overdraft, you could more than halve your interest payments for six months. Most authorised overdrafts at high street banks cost around 18 per cent APR.

Unauthorised overdrafts can be painfully expensive. NatWest charges an annual 33.8 per cent interest, according to financial information provider Moneyfacts, while interest rates on store cards can be high, with Laura Ashley charging a whopping 30.9 per cent.

MBNA issues Mastercards and Visa cards with cheques, and this can allow you cheap borrowing - at least for a while. MBNA's standard APR on cash withdrawals is 20.8 per cent, but if you're new to the card, you pay 11.6 per cent for the first six months.

MBNA, whose cards are available through other issuers, says introductory rates vary according to the offer on at the time and the issuer.

For credit card users, the cheques can be useful for times when credit cards are not accepted, for instance when shopping in Marks & Spencer and John Lewis. "Paying your painter and decorator is a classic example," says Co-op Bank's Dave Smith. However only a few of the cards act as guarantee cards for the cheques.

Save & Prosper/Fleming markets one credit card, a base-rate card charging 12.7 per cent APR for purchases and 14.4 per cent APR using the chequebook.

The Consumers' Association admits the cheques can be useful. "But the bad thing about them is they're treated as cash advances," says Malcolm Coles. "So you pay interest on them even if you pay your bill off in full every month."

Some issuers, such as Barclays, charge interest on cash advances from the statement date, but some, including MBNA and People's Bank, charge from the date of withdrawal or the date the withdrawal is charged to your account.

Analysis by People's Bank suggests most people use credit card cheques to pay off more expensive borrowing. The bank says 31 per cent of customers make the cheques out to other credit card providers which charge higher rates. A further 28 per cent of cheques are made out to other banks and building societies. Just one-tenth of cheques are written out to other individuals and organisations.

But stop-gap borrowing on your credit card might backfire if you are taking advantage of a low promotional rate which expires and moves higher.

People's Bank: 0500 551055

Co-op Bank: 0800 109000

Barclaycard: 01604 234234

Royal Bank of Scotland:

0800 161616

Beneficial Bank: 0345 660660

MBNA: 0800 062620