Britons spent a record £436.47 billion on payment cards during 2004 as the use of plastic continued to grow in popularity.
The combined value of all transactions made on credit, debit, charge and store cards rose by 11 per cent during the 12 month period compared with the previous year, according to market analyst Datamonitor.
Total transactions on plastic cards also accounted for 60 per cent of all household expenditure in 2004, up from 44 per cent in 2000 and just 26 per cent in 1995.
Author of the report Kieran Hines said: " Consumers are more comfortable using cards for both day-today transacting and borrowing, and this continues to drive growth in the market.
"Cards are swiftly becoming the dominant payment method of choice for a growing number of consumers in the UK, continuing to replace both cash and cheques."
Debit cards led the way, with consumers spending a total of £288.13 billion during the year, 17 per cent more than they had done during the previous 12 months.
Spending on credit cards rose by nine per cent to £117.97 billion, while charge card usage increased by five per cent to £26.07 billion.
Store cards were the only type of plastic to see a fall in their popularity during the year, with consumers spending just £4.3 billion on them in 2004, 17 per cent less than during the previous year, possibly because people have became increasingly aware of the high rates they charge.
The research also found that increased competition between credit card providers had driven down the interest rates charged over the past few years from an average of 18.6 per cent in June 1999 to 16 per cent in March this year.
The fall in the introductory rates on offer has been even more dramatic, with introductory balance transfer rates slipping to just 3.2 per cent from 12.2 per cent during the same period, while the rates offered for new purchases have dived to 0.3 per cent from 9.7 per cent.
The group said that while the Bank of England base rate had fallen from 7.5 per cent in January 1998 to 4.75 per cent this March, the reduction in credit card rates had outpaced this, putting margins under pressure.
It added that so-called rate tarts, who shift their outstanding balances between cards to continually take advantage of introductory offers, had also hit profitability, leading to speculation that the introductory rate could become a thing of the past.
Mr Hines said: "Clearly offering APRs at below the base rate is costly for card issuers, and this has seen issuers introduce fixed fees for balance transfers in order to protect their margins.
"However, a glance at the US market has shown that introductory rates can comfortably exist in the most mature of markets."