How else is it possible to explain why someone running a debt of pounds 1,000 over a 12-month period would prefer to pay upwards of pounds 180 in interest on that amount, as compared to pounds 120 with a card which is virtually as good? This is the choice facing someone with a card from the Barclaycard stable, which recently cut its rates to 19.9 per cent, or Capital One Bank, charging 11.9 per cent APR.
The evidence, however, is that growing numbers of us are prepared to give up our masochistic ways. In the past three years, upwards of two million new cards have been issued which undercut those on offer from our high-street banks.
This week, Direct Line - the neurotic-telephone-on-wheels financial- services supplier - entered the market with the launch of its own low-cost flexible friend. Its card will charge just 6.8 per cent APR in the first six months for both purchases and balance transfers, reverting thereafter to a reasonable 15.9 per cent APR.
Direct Line hopes to revitalise the credit card world with the first telecard, which it claims will be supported by a fast and efficient telephone service. But it is joining a tough and overcrowded market where dynamic plastic interlopers from the US have all but stolen the march on the sleeping giants of UK banking. Customers have been the big winners from these credit card wars. A flood of cheap deals starting at 6.9 per cent APR, from American card issuers like People's Bank of Connecticut, MBNA, HFC and Capital One, have sent Barclaycard's share of the market down from 32 to 28 per cent.
Nick Cobham, a director at the Credit Card Research Group, explains: "The credit card market in this country has changed over the past few years. Customers have switched from the traditional high-street banks, to the new American direct-mail issuers."
More bad news looms on the horizon. Morgan Stanley Dean Witter, which owns one of the US's most popular credit brands, the Discover Card, is creating a new power base in Cumbernauld, Scotland. Few doubt it will be used to launch some kind of European Discover operation, to expand its 40 million American card-base. And where the US prospers the Germans are quick to follow. Volkswagen is planning a multi-million-pound attack on the UK personal finance market, with a credit card as a central plank of its strategy.
But the traditional banks are fighting back. Sheer fright at an overnight haemorrhaging of accounts led Barclaycard, the UK's biggest issuer, to axe 1,100 employees. It has since relaunched its card with a new 19.9 per cent APR, still twice as high as many others. Lloyds, too, is unveiling a set of new cards, called the Lloyds TSB Asset Range, with lower interest rates and fewer annual fees.
The biggest dilemma for customers is knowing which card is right for them from the plethora of offers which fall daily through their letterboxes. Yet choosing is more simple than it seems, because credit card customers fall into two essential categories. About half pay off their bill every month, in which case the interest charge is irrelevant. They need to consider the size of any annual fee, and the whistles and flutes which come as part of the package.
Annual fees have been one of the happy casualties of the plastic war. One of Barclaycard's new features waives it if you spend more than pounds 2,000 a year.
On the incentives side, you can use your card to save towards discounts on anything from cars to flights with air miles, and take money off utility bills with British Gas's goldfish card. Barclaycard's new reward scheme gives rebates on gas, electricity and telephone bills.
Alliance & Leicester has gone one step further with its cashback card, a copy of the US's Discover card. It refunds 0.5 per cent of all purchases up to pounds 2,999.99 and 1 per cent thereafter.
But customers who borrow regularly should ignore all these frills and opt for the cheapest interest rate they can find - which, at the moment, will almost certainly be an introductory discount rate for a six-month period. The Nationwide card, for instance, charges 16.5 per cent APR with an introductory rate of 8.5 per cent; Tesco charges 14.9 per cent APR, discount rate 9.9 per cent.
You need to check the small print carefully, as some issuers only charge the lower introductory rate on outstanding balances transferred to the new card. Barclaycard, for example, charges 9.9 per cent APR on such balances but new purchases attract interest at the higher rates.
Smart shoppers can use these lower introductory rates to surf between cards. Even the very cheapest personal loans are twice as dear.
But it is not all good news for customers, because the sting in the tail of many of these cards lies with the "hidden" charges which can dilute some of the joy. Some issuers will levy a pounds 20 fee if your payment arrives a couple of days late, pounds 15 for exceeding your credit limit and other similar charges for routine administration.
And here Direct Line is among the offenders. It plans to levy a pounds 10 charge for late payment.
THE COST OF BORROWING pounds 1,000: HOW CREDIT CARDS COMPARE
Lender Introductory Standard Annual Interest- Cost of borrowing Savings with
APR APR Fee Free Days (including annual fee) Direct Line Direct Line MasterCard 6.8% 15.9% nil 46 pounds 108.06 n/a
Debenhams Option Card n/a 3100.0% pounds .00 56 pounds 273.60 pounds 165.54
Woolwich Secured MasterCard n/a 21.00% pounds 12.00 45 pounds 223.20 pounds 115.14
Halifax Gold MasterCard n/a 17.90% pounds 20.00 56 pounds 185.60 pounds 77.54
MBNA MasterCard n/a 19.90% nil 59 pounds 183.60 pounds 75.54
Abbey National Visa n/a 17.90% pounds 9.50 49 pounds 183.50 pounds 75.44
Goldfish MasterCard/Visa n/a 19.80% nil 52 pounds 182.40 pounds 74.34
American Express Blue 9.90% 19.50% pounds 12.00 56 pounds 137.40 pounds 29.34
Sainsbury's Merit Visa 9.90% 14.90% nil 0 pounds 118.08 pounds 10.02
People's Bank MasterCard/Visa 6.90% 17.90% nil 56 pounds 116.40 pounds 8.34
Capital One Bank MasterCard n/a 11.90% nil 54 pounds 113.76 pounds 5.70