Managing payments can keep credit cards as flexible friends not cash-eating enemies

CARDHOLDERS:Credit cards are not suitable as a means of long-term borrowing, but financial institutions make profits from the individuals who fall into that trap. It is worth learning to use the cards to your advantage, writes Clare O'Dea

If you splurged with your credit card over Christmas and then got sucked back in for more reckless spending in the sales, maybe it's time to think about whether you have created a flexible enemy in your wallet.

Credit cards are convenient and cost-efficient when used prudently, but interest rates are astronomical for those who allow a hefty balance to build up.

Nobody likes to be lectured, but if you cannot afford to clear your monthly balance - then you cannot afford those extra purchases in the first place. However, if the damage is already done, you will just have to draw a line under the debt and deal with it.

The most recent figures from the Irish Bankers' Federation (IBF) show that consumers in the Republic spent an average of €3,174 (£2,500) each in 43 credit card transactions in 2000. With card users being charged interest rates of up to 18.9 per cent, opting to pay back the monthly minimum of 5 per cent of the bill is a recipe for disaster.

It is estimated that one-quarter of the Irish population owns at least one credit card. The credit card is not suitable as a means of long-term borrowing, but financial institutions make profits from the hapless individuals who fall into that trap.

So if your card has become your enemy, get smart, shift the debt and learn to use the card to your advantage.

All credit cards basically work in the same way. Purchases can be made up to a pre-determined credit limit. A monthly statement informs the cardholder of the balance outstanding, the minimum payment required and the due date for payment. Where the full balance is paid on time, no interest is charged. Where a lesser amount is paid, interest is charged on the outstanding balance.

The cost of using the credit card depends on the pattern of usage and repayment.

The IBF estimates that as many as 50 per cent of cardholders regularly clear their bills on time and do not incur any interest charge on purchases. In this way, some cardholders have the use of interest-free credit for up to 57 days.

But is there a way out for those who are paying high interest on a high balance?

Three card-providers are offering low six-month introductory APRs to customers who transfer balances from other credit card accounts. MBNA's rate is the lowest, at 3.9 per cent. After six months, the APR for purchases charged by the global credit card giant is the also the lowest in the market, at 14.9 per cent.

Tesco Personal Finance and AIB also offer low introductory APRs (5.9 per cent and 6.9 per cent respectively) for balance transfers to their standard Visa and Mastercards. These rates climb to 16.9 and 18.9 per cent respectively when the six-month offer expires.

The challenge is to operate a plastic spending freeze and reduce the balance by as much as possible during the low-interest period, and then carry on as a reformed credit card user when you can make the full monthly repayments. If that proves impossible, there is always the option of cutting up the card and using a debit card instead.

There are some things every credit card user should know. A recent survey by Europay International found that half of all Irish credit card users had no idea they paid an annual Government duty of €19 for each credit card they own. The tax is applied to accounts in April. Among the under- 25 age group, 71 per cent were unaware of the tax.

Do you know what your credit limit is? Is it set at a level that suits you? As long as you keep making the minimum monthly payment, card providers will keep raising the credit limit on your card unless you ask them not to. In some cases it is not a good idea to allow the limit to keep growing. It's important, therefore, to keep an eye on it and take the trouble to read mail sent to you by financial institutions.

Some card providers impose penalties for exceeding the credit limit and missing monthly payments. Sensible financial housekeeping should ensure that such penalties do not arise.

Gold cards, charity cards and affinity cards offer slightly more favourable rates and terms, so it's worth making a few calls to card-providers to establish your eligibility for their range of cards.