(MONEY Magazine) – Chances are you've been intrigued by the ads for the new AT&T Universal Visa and MasterCard. Guarantees of no annual fee ever (national average: $18.65) and 10% discounts on long-distance charge calls have already persuaded more than a million people to apply for the card. That makes AT&T Universal one of the 40 most widely held bankcards in America, after only six months on the market. Whether you should ring up AT&T (800-662-7759) and join the crowd, however, depends on which credit cards you already hold and how you use your plastic. Some people, such as those with $50-a-year gold cards who pay their bills in full each month, will do well to switch to AT&T; others will be better off sticking with the cards they now have. It all depends. If nothing else, regard the introduction of the AT&T Universal as the impetus you may need to re-evaluate your card collection. After all, few of us truly need each and every one of the seven charge cards (up from five on average in 1980) that we carry. If you shop carefully, you may be able to slash your credit balances by finding alternative cards that cost less. Need a further nudge? Starting in January, none of the interest you pay on your credit cards will be tax deductible. First, a profile of the new card on the block. Essentially, it's a beefed-up Visa or MasterCard issued through the newly created Universal Bank in Columbus, Ga. It also comes in a gold Visa incarnation, which brings extra features such as coverage for the replacement of lost airline tickets and medical and legal assistance. The gold card has an initial $5,000 credit limit, twice that of the standard card. Only if you fail to charge at least one purchase a year on your card are you subject to an as yet unspecified annual fee. AT&T's interest rate is pegged at 8.9 percentage points over the prime rate (10% today) and is set quarterly. Right now, that puts the rate at a high 18.9%. That's a whisker below the 19.8% charge of nine of the 10 biggest card issuers. But don't forget that AT&T's tab is variable. Thus, Universal customers could be in for a rude surprise if the prime shoots up to, say, 12%. If you carried a $2,500 balance -- interest begins accruing after a 25-day grace period -- AT&T's rate would be 20.9% and your annual interest cost would be $522.50. Ohio Savings, which has a 14.75% fixed rate on its Visa and MasterCard, would run you only $368.75. Needless to say, such a difference would more than make up for the cards' $18 annual fee. The no-fee AT&T card, then, is a far better option for the 35% of cardholders who pay their balances in full each month than it is for the roughly two-thirds who let their charges ride. Depending on the size of their , balances, such revolvers can do better overall by choosing one of the low-rate cards listed each month in the Money Scorecard (see page 17). Yet even if the Universal card is not right for you, you're likely to profit from its existence. AT&T's boffo success has begun forcing other issuers to shower their cardholders with perks so they won't defect -- although few go the no-fee route. Starting this fall, more than 40 banks, including Citibank, Security Pacific and Household Bank will offer MCI service on long-distance calls charged with their Visa and MasterCards. What's more, extended-warranty and buyer-protection insurance are now part of the package for the American Express green card and many other Visas and MasterCards. And this fall MasterCard -- taking a cue from Sears' Discover Card (35 million holders), which pays a cash rebate of up to 1% of annual purchases -- will offer 10% to 50% discounts at stores such as Montgomery Ward, Toys R Us and Casual Corner. All these developments suggest that cardholders should adopt new strategies, says Robert McKinley, the Frederick, Md. publisher of RAM Research's Bankcard Update newsletter. His approach: Get one no-fee Visa or MasterCard with a grace period of 25 or 30 days. Use this one as a convenience card for small purchases and pay off your charges in full each month. ''Don't worry about the interest rate because you won't be paying interest,'' says McKinley. AT&T Universal could be your convenience card. Then get a second Visa or MasterCard with the lowest interest rate possible -- say 14% -- and use it to spread out payments on bigger purchases. You should also consider switching to AT&T if: -- You have the American Express card with its $55 annual fee and wouldn't mind replacing it with a gold Visa card. Since you're already settling up monthly, the no-fee aspect of the Universal is a real plus. -- You have a gold Visa or MasterCard with an annual fee and generally pay off your monthly balance. But gold cardholders who tend to pay interest should compare their finance rate with AT&T's before making the switch. Now for AT&T's nickel-and-dime stuff. Phone charges must be paid in full each month. AT&T also charges $35.75 for a $1,000 cash advance paid after 30 days, compared with $26.50 with a Citibank Visa or MasterCard. And if you want three or more Universal cards, the no-fee pledge vanishes. You'll pay $10 a year for each card after your first two.

BOX: AT&T Universal at a glance

Annual fee: None -- ever -- if you get the card in 1990 and make at least one purchase a year

Interest rate: 8.9 percentage points above the prime rate, adjusted quarterly. Current rate: 18.9%.

Grace period: 25 days

Maximum initial credit line: $2,500 on standard Visa and MasterCard; $5,000 with Gold Visa

Additional features: 10% off AT&T long-distance calls; 90-day buyer-protection coverage; up to one year extended-warranty coverage; collision damage insurance for rental cars; $100,000 worth of travel accident insurance

How to apply: Call 800-662-7759.