It pays to plan carefully when taking the credit

In place of both writing cheques and carrying currency, credit cards are just so handy. When paying for goods and services by telephone or via the internet, a credit card is the answer.

The summary record carries more information than bank statements apart from the narrative form available through certain private banks.

Increasingly – along with debit cards – it may become the compulsory way to purchase as shown by an increasing number of petrol stations in the US which decline notes and coins.

In some countries, notably Iceland, almost every transaction except bus fares is now on plastic. This may cause problems for those with poor credit histories or who are unemployed without sufficient back-up savings.

There are now 51 million credit card accounts with almost half having outstanding debt.

A staggering 41 per cent have a balance on their main credit card which has been owed for over a year. According to the website moneysupermarket. com, 14 per cent of customers had still not repaid credit card debt incurred over five years ago.

This is a very expensive form of credit. On purchases, the APR can reach 39.9 per cent with Vanquis Bank, 34.9 per cent with Capital One, 32 per cent with American Express, 31.5 per cent with MBNA Europe and 29.9 per cent with Barclaycard. Yet a personal loan APR can be as low as 8.6 per cent (Sainsbury's Finance), 8.7 per cent (Tesco Bank) and 8.9 per cent (Post Office and Santander).

Many only repay the minimum sum required each month for whom one of the zero or low balance transfer deals could be an ideal short-term solution.

Frequently, credit card providers are forced to write off poor losses. In the April-June quarter, a record 2.1bn of bad debt (up from 168m in the equivalent period a decade ago) was cancelled as unemployment rates rose and income growth stagnated.

Currently MBNA offer a nil interest charge for their Visa card on balance transfers for 16 months after which time the account is subject to a variable 16.8 per cent APR rate.

Almost as competitive are Barclaycard and Clydesdale Bank with their respective Visa and MasterCard accounts for the same period but then moving to a variable 16.9 per cent APR.

If the priority is to find the best credit card for purchases where no interest is liable, Tesco offers the longest period currently with their MasterCard where a variable 16.9 per cent APR only starts after 13 months. Close behind with no interest fees for 12 months are Sainsbury's Finance but available only to active Nectar card holders and Halifax, which is restricted to their account holders. After a year, the variable APR rate for both providers is 15.9 per cent.

With so much debt now on credit cards, providers are becoming more cautious over those they accept.

Last year 48 per cent of credit card applications were refused by comparison with one-third in 2004-2005, according to the UK Cards Association.

Before applying for a new card, it's a good idea to check the accuracy of your credit position as recorded by Equifax, Experian or Leeds-based CallCredit. They will supply a report for 2 or it may be possible to secure it free online.

It could be, for instance, that a former person living at your home incurred debts and that you have been incorrectly associated with their financial recklessness.

Disregarding both balance transfers and zero rate introductory purchase deals, if you regularly do not pay off the full balance on purchases, look to switch to a provider with a low APR interest charge where no fee is incurred, notably:

n Barclaycard Platinum Simplicity Visa, typically 6.8 per cent;

n Co-operative Bank (part of Co-operative Financial Services) Platinum Tracker Visa, typically 7.7 per cent;

n Capital One OneRate MasterCard, typically 9.9 per cent;

n Saga – available to those 50 years and above – with its Platinum Visa and Lloyds TSB (Advance MasterCard) are also fee-free and typically charge 11.9 per cent APR.

Using a credit card abroad can be expensive with typically a 100 cash withdrawal costing an additional 6, formed of a three per cent withdrawal fee plus a foreign loading charge of typically 2.75-2.99 per cent.

Instead look for a credit card with no foreign usage loading: Halifax (both Clarity and Rewards Clarity), Post Office (both Classic and Platinum), Saga, Sainsbury's Finance (just its Gold), Santander (Zero Credit). Nationwide (on both its Classic Visa and Gold Visa) has no fee in Europe but one per cent outside.

Look, too, for cards which provide a cash rebate based on the amount spent which excludes cash withdrawals. This can amount to five per cent in the first three months with fee-free American Express Platinum (maximum 100 reward) and up to 1.25 per cent thereafter with no limit.

Others offering cash rebates are Bank of Ireland (Moneyback), Capital One (World MasterCard), Egg (Money World), First Trust (Visa Option 1), Halifax (Rewards Clarity), Leeds (Platinum), NatWest (Advance Gold), Royal Bank of Scotland (Royalties Gold), Smile (Classic).

Check when such rebates are paid with most annually but some monthly and if there is a ceiling, such as an annual retail spend up to 15,000 on the newly launched Leeds Building Society which pays 0.5 per cent every January "just after what is traditionally an expensive time of year", says its general manager for marketing and business development, Martin Richardson.

Free worldwide multi-trip annual travel insurance is another credit card perk worth enjoying.

It is provided by Co-operative Bank (Clear Visa), Coutts (Gold), MBNA Europe (Travel Amex), Sainsbury's Finance (Gold). All such benefits can be checked with Money-facts.

Lost or delayed luggage insurance is provided complimentary with American Express (Starward), Coutts (Gold), Marriott and Sainsbury's Finance (Gold).

Free flight delay and/or cancellation cover is offered by American Express (Starward), Coutts (Gold), Marriott, Sainsbury's Finance (Gold) and Virgin Money (Credit Card, not its 12/12 Credit Card).

Free medical insurance and card protection are given with Coutts (Gold) but the card costs 90 annually although the charge is reduced when different levels of purchasing have been made.

A classic way to spend

Michelle Hepples, a 28-year-old dietitian, who works for the NHS in Bradford, opted for Nationwide Building Society's Classic Visa as her credit card. She took it out two years ago and finds it far more acceptable than her former American Express card.

The credit card is issued without any annual fee. It has an interest free period of 56 days and any unpaid purchase balances incur a 19.9 per cent APR interest charge.

It comes with several benefits including free extended warranty for 12 months on most household appliances beyond the manufacturers' usual two years when purchased with the card and registered within 60 days of purchase.

All purchases in the EU are free of any foreign usage loading and outside Europe the fee is only one per cent by comparison with 2.99 per cent imposed by many other providers.

"I use the Nationwide Classic Visa mainly for petrol and shopping," says Michelle, who also holds a debit card and Flexi current account with the Nationwide.

Michelle, who lives in Leeds, enjoys practising and taking part in triathlons.