Stressed Consumers Moving Away from Credit Cards

New York, NY, Nov. 24, 2008--More Americans are relying on cash and debit card to make purchases and are moving away from credit.

Retailers like Wal-Mart Stores Inc., Target Corp. and J.C. Penney Co. are noticing a marked shift away from credit cards. A big factor is less credit available as major card issuers cut spending limits and raise fees even for customers who pay their bills on time.

The shift ends, at least temporarily, Americans' long love affair with credit cards and is one of the changes in consumer behavior that has emerged since the financial meltdown that could depress consumer spending this holiday season and affect shoppers' habits long afterward.

Particularly during holiday seasons past, shoppers could count on a pile of plastic to give them the extra financing needed to splurge on presents before they had to face the bills in January or later.

But even when the economy recovers and credit loosens up, analysts say Americans -- shaped by what could be a deep and long-lasting recession -- are likely to stick with buying only what they can afford just as their parents or grandparents did after the Great Depression.

While the credit crunch is teaching consumers to be more "financially prudent," it's creating a lot of pain for both consumers and stores, said Curtis Arnold, founder of CreditRatings.com.

One sign of how strapped consumers are for credit -- and buying only what they have the cash for -- is that for the first time in 17 years, Penney's has seen swings in spending around payday cycles over the past three months.

That's common for discounters like Wal-Mart, but a rarity for a mall-based department store -- suggesting that Penney's middle-income customers are feeling the pinch as well. Penney's President and Chief Merchandising Officer Ken Hicks noted that the chain hasn't seen swings in spending around payday since about 1991, when the U.S. was entering a recession

Eduardo Castro-Wright, president and chief executive of Wal-Mart's U.S. division, told investors last month that credit card payments as a percentage of total payments fell 7.4 percent so far in the current fiscal year, which ends in January. That's a big reversal from the robust double-digit growth rates in credit cards over the past three years, he said.