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The good thing about credit cards is that they let you make purchases when cash isn't an option. The not-so-good thing: They tempt you to impulsively charge items you don't really need. Keep in mind that every time you use a credit card, you're borrowing money. So think of credit-card debt as a high-interest loan, and consider these five smart ways to use credit cards:

SHOP AROUND With hundreds of credit cards to choose from, it's smart to shop for the best deal--a card with no annual fee and a low APR (annual percentage rate)--advises Pat Martin, a financial consultant at Ryan Martin Associates in New York. Read the fine print to see if a low APR is a promotional rate that expires after a few months and then leaps up, often dramatically, particularly if you make one late payment. If you plan to pay your bill in full each month, look for a low annual fee and a long grace period--the time between the statement date and the payment-due date in which you'll avoid finance charges. If you plan to carry a balance, go for the lowest interest rate. Also look for a low rate on cash advances. Comparison-shop at Cardweb.com and Bankrate.com.

IMPROVE YOUR CREDIT RECORD A credit report is a snapshot of your debt-paying activity; your credit (FICO) score--a number ranging from 350 to 850--predicts whether you're a good credit risk (above 620 is considered respectable). The higher your score, the better your chances of getting a low interest rate on a credit card, car loan or mortgage. Charging near the limit or maxing out credit cards can lower your score, Martin says. Get a copy of your credit report at least yearly from the three major credit bureaus (equifax.com or [800] 685-1111; experian.com or [888] 397-3742; transunion.com or [800] 916-8800) and challenge any errors. (Under a new law, by September 2005 all consumers will be able to get a free credit report.)

LIMIT YOUR NUMBER OF CARDS A wallet filled with credit cards (which represent money you owe or can borrow) may work against you when you apply for a loan or mortgage. Two or three cards are enough, Martin says. If your credit report indicates that you already owe or can access a great deal of money, potential creditors may determine that added debt could strain your ability to repay.

SWITCH BALANCES CAUTIOUSLY If you transfer your high-interest balances to a low-interest credit card, be aware that the low rate may last for only a limited time, and that many credit-card companies assess transaction fees, sometimes up to 4 percent of the amount transferred. Avoid cards that charge hefty fees, which may outweigh any savings offered by a lower interest rate. Scrutinize the application or call a company representative and ask about all charges before signing up. Once you transfer the debt, stop using the old card.

AVOID CREDIT PITFALLS Despite the benefits, there are pitfalls that accompany credit-card use: It can be costly, with some interest rates higher than 25 percent and whopping annual fees, finance charges and penalties that can jack up the purchase price. And you risk spending more than you can pay. Calculate how much you can afford to charge each month, then put your receipts in an envelope and keep a running total on the outside. Once you reach your limit, put away the plastic.

RELATED ARTICLE: Are you in over your head?

How can you tell if you're drowning in credit-card debt? Take this quiz to find out.

* Next month's bills arrive before you've paid last month's. Yes/No

* You typically receive past-due notices. Yes/No

* You're often billed for over-the-limit or late-payment fees. Yes/No

* You can barely make the minimum payment due. Yes/No

* You sometimes use one credit card to pay another. Yes/No

If you answer yes more than no, it's time to stop charging, Develop a debt-reduction plan, or seek help from a nonprofit credit-counseling agency, preferably one affiliated with the National Foundation for Credit Counseling ([800] 388-2227 or nfcc.org).--L.S.