Your money: Flexible fiends

Credit cards are convenient - but try to avoid paying their interest charges, says Rachel Fixsen

However good your intentions, it is easy to let credit card bills get out of hand. Flexible friends remain flexible and friendly as long as you settle up every month. But once you are in the grip of punitive interest rates, they start looking decidedly hostile.

Money advisers working for Citizens' Advice Bureaux are busiest at this time of year, when Christmas overspending catches up with those unable to meet credit bills. Troubles are compounded by council tax bills and water bills.

Even if credit card debt is not a problem in your overall financial affairs, you may find a cheaper way of borrowing. And if debt is a problem, the sooner you act, the better.

"We often find that clients are not aware of the cost of borrowing from credit cards," says Andrew Swallow, a financial planner. Some credit cards charge a crippling 26 per cent annual interest. "The first thing is that credit cards shouldn't be used as charge cards," he says: you should always pay your monthly balance in full to avoid interest.

If you have a house, then some form of remortgaging does make sense to clear persistent credit card debts, Mr Swallow says. Although this will spread your debt over a long period, the interest rate will be much lower and the repayments more manageable. Mortgage rates are currently around 7 per cent.

Another way to refinance your card debt is to take out a bank loan over a fixed period - say, five years. The interest rate will not be as cheap as with a mortgage, though on average it should be cheaper than the rate you pay on your credit card. Banks charge between 9 and 20 per cent in annual interest on authorised overdrafts, according to MoneyFacts. But unauthorised overdrafts can cost as much as 32 per cent.

If you do intend to keep using a credit card, switch to one that has a low interest rate, Mr Swallow says. "You could be saving almost 10 per cent if you shop around." A Mastercard or Visa from the People's Bank of Connecticut, for example, charges just 14.4 per cent interest. Read terms and conditions of credit cards carefully, as they can vary widely.

Stuart Davidson of the National Association of Citizens' Advice Bureaux Money Advice Unit says you must act, if you can afford to pay only the minimum payment each month, or can't even afford that. "You should be looking at your finances and stopping using the card, because the minimum payments are only going to increase," he says. The first thing to do is contact the lender, who will often give you help and advice. "They may be able to suspend interest charges to get over a short-term difficulty," Mr Davidson points out. A repayment arrangement may include suspension or reduction of interest for up to three months.

Take a careful look at your income and expenditure and see if there is any way you can reduce spending on non-essential items. If you can't see any way of trimming expenses, seek advice, Mr Davidson says. Taking out a loan or remortgaging to pay off a credit card balance can make sense for people who don't have an overall debt problem, but Mr Davidson warns those already struggling financially against consolidating debts into a single payment. "In some cases consolidating may be an option, but it very often ends up costing more money," he says. There may be hidden costs and arrangement fees, and you may be required to take out insurance.

Once you have freed yourself from credit bills, make sure they don't pile up again. When faced with a decision in future on whether to buy something on credit, choose an interest-free option, Mr Swallow says. "But before you commit yourself, add the monthly cost to your expenditure and think seriously: is this going to cause problems?".

National Debtline on 0121-359 850; Consumer Credit Counselling Service 0800 138 1111; For your local CAB, look in the 'Yellow Pages' under "counselling and advice agencies".