Recession is in the air and job losses are rising but only a nightmare twist in the war on terror will spoil our Christmas spending spree.

We spent £8.4 billion on plastic last December. This year should beat that comfortably, as the lowest mortgage rates since October 1955 makes people feel "richer" and major stores launch their sales early.

Britain is the credit card capital of Europe, with the number of cards in circulation rising at a compounded rate of 25 per cent since 1996.

On 51 million credit cards in the UK, the total outstanding balance is £39 billion.

Almost a third is paid off after the monthly statement, leaving £29 billion racking up interest charges for card suppliers.

In mid-January, that figure will hit £33 billion and, on the average credit card rate of 16.7 per cent, interest bills for overspent card holders will total £345 million each month.

No wonder credit and store card companies attract furious criticism for failing to cut rates this year, despite seven rate cuts from the Bank of England.

Barclaycard, which started the plastic bandwagon rolling in 1966, still charges 18.9 per cent APR on outstanding balances and 21.3 per cent on cash withdrawals.

Other big banks, HSBC, NatWest, Lloyds TSB and Royal Bank of Scotland, are in the same ball park, while some store cards charge more than 25 per cent.

Capital One, a US credit card giant listed on Wall Street which came to Britain in 1996, claims to provide the choice which gives consumers much better deals.

It has forced rivals to drop annual fees, charging 6.9 per cent on balance transfers from another card and 12.9 per cent on new spending, after an introductory 0 per cent rate in the first 12 months.

Capital One gives cards to poorer people more than affluent ABC1s who normally get them.

But the poorer the credit risk, the higher the rate and, even with two million card holders in Britain, Capital One has been criticised for charging high rates.

One reason we pay so much for credit cards is a monthly rate of 1 to 1.5 per cent looks tiny until it translates into the upper teens as an annual rate.

Cahoot, Abbey National's internet arm, has most customers on eight per cent after credit-scoring, which shows how much money the rest cream off.

Second, as Which? magazine explains, most of us are ignorant of the complex system of charges which kicks in as soon as cardholders fail to pay off their accounts.

Which? says: "The good news is from the end of this year credit card companies must show the APR on statements.

"They must also detail how much interest card holders would pay if they made only the minimum payment shown on the statement."

There is more good news in the form of special deals from card companies chasing business.

Co-Op Bank's platinum card has a 0 per cent introductory offer until May 2002 on transferred balances and new purchases for applicants on £25,000 a year.

Egg's introductory 0 per cent offer on balance transfers and new purchasers runs until December 31. Then it rises to 12.9 per cent with 0.5 per cent cashback.

Lloyds TSB is slashing costs for new and existing customers with a 1.9 per cent balance transfer rate for six months on sums switched from other cards, which could save £320. Thereafter, lower rates on platinum, gold and standard cards start at 13.9 per cent.

Lloyds TSB spokesman Mark Austin says: "To use our low rates, you don't have to bank with us. And if you owe, say, £5,000 on another card with loyalty points, you could shift £4,000 to our card and leave £1,000 on the original card to keep your points. There is no need to close other cards."

Lloyds' move brings it into line with other "best buys" on the web site moneynet.co.uk, including: Alliance and Leicester, 13.8 per cent; Smile Gold Visa, 12.9 per cent; Hamilton Direct, 11.9 per cent; Halifax, 11.8 per cent and Northern Rock, 10.5 per cent.

Richard Brown, of moneynet.co.uk, said: "Someone with a £3,000 balance on a card paying at the average rate of 17.9 per cent could save more than £350 in the first year by transferring the debt to a card offering 0 per cent APR for the first six months and a more competitive rate thereafter."

Even Capital One accepts £10,000 is about the minimum annual income required for mainstream products.

Financial adviser Colin Jackson, of Baronworth Investment Services, urges common sense.

He says: "I am astonished how generous credit limits can be. Don't spend more each month than you can afford to pay off is the golden rule, although 70 per cent of card holders do otherwise."

Alliance and Leicester, with a 1.9 per cent introductory offer, hands back 0.5 per cent up to £4,000 and one per cent above that figure and card holders get cheques of up to £300 each year.