Associated Press
NEW YORK -- Shoppers are doing all they can to keep their credit cards in their wallets this holiday season.
They're paying with cash, direct debits from bank accounts, taking advantage of free financing and even cashing in frequent flier miles.
A desire to stick to a budget and to avoid interest rates that have risen sharply have helped drive a marked shift away from credit cards. Banks have also reduced the amount of credit they're making available, even to low-risk clients.
"Consumers are looking for discipline in their spending levels that they can achieve from using cash," said Bryan Eshelman, managing director in the retail practice of consultant AlixPartners, whose recent survey of shoppers revealed their top concern was eliminating personal debt.
Often, the switch to cash or debit cards means lower costs for stores, though merchants miss out on getting data on their customers' shopping habits from credit card transactions.
Layaway and other payment methods increase costs, but they can be offset by new opportunities to grab sales from customers who would otherwise not able to buy.
Bill Hampel, chief economist at the Credit Union National Association, describes the consumer switch as "seminal."
"People are trying a lot of new behavior in how they're spending and how they are paying for it in response to a very scary economy," he added.
Some new habits, particularly using more cash, will likely linger, with unemployment expected to remain high for several years and credit lines less generous.
Credit cards accounted for 60 percent of transactions at malls operated by Taubman Centers so far this holiday season, down from 70 percent last year, according to an internal survey.
Earlier this year, U.S. debit payment volume exceeded that of credit for the first time, Visa Inc. reported.
PayPal, an online payment service owned by eBay Inc. that lets shoppers pay directly from their bank accounts in addition to traditional credit, saw its active accounts surge 20 percent in its latest quarter compared with a year ago.
A report from the Federal Reserve issued Dec. 7 showed how Americans borrowed less for a record ninth straight month in October.
Stores have responded by promoting alternative ways to pay and offers that defer payment for several months.
Sears and Kmart are now offering store card holders who spend just $99 or more a chance to borrow at no cost for six months. A year ago, shoppers had to spend at least $199.
In the tough economy, layaway is booming at stores like discounter Fred's Inc., which saw it increase sixfold in the latest quarter. But it's also shedding its image as a tool for the poor.
Layaway allows shoppers to pay over time, interest free, and pick up their goods when they're paid in full.
