Fewer Shoppers Using Credit Cards for Gifts

Climbing interest rates, lower spending limits and canceled accounts are prompting more holiday shoppers to leave their credit cards at home this year.

"There is definitely an overall shift from credit to debit," says Curtis Arnold of CardRatings

"This holiday season, it has been accentuated by the credit crunch and the economy."


An estimated 28.3% of people will be using credit to pay for gifts this year.

An estimated 28.3% of people will be using credit to pay for gifts this year, according to a recent survey of 8,692 consumers conducted by the National Retail Federation and BIGresearch. That's down from the 31.5% of shoppers who paid with credit cards during the 2008 holidays, according to the survey.

Mike Cleary's family has ditched credit cards this holiday season. He and his wife had three credit cards with a total balance of about $6,200, but paid those off because of high interest rates. "We were going to get rid of those, bite the bullet and use cash from that point," says Mr. Cleary, a 53-year-old from Duluth, Ga.

Instead of the usual $3,000 to $4,000 he typically spent for the holidays, Mr. Cleary says he will be spending below $1,000 on his family this year. "We just told them, 'Hey, it's going to be a light Christmas.' "

Consumer credit has deteriorated since the last holiday season, when interest rates were lower and spending limits higher, says Mr. Arnold. "Even if you got good credit, no one is immune from having their account closed."

Last holiday season "we charged into it thinking things would end a lot quicker," says Brian Riley, research director at TowerGroup, a financial-research consultant. Unemployment is still high and consumers are skittish about adding debt. Also, credit-card companies are under pressure from upcoming regulations concerning the credit industry, which go into effect early next year.

Plus, "there has been a practical change in people's buying habits," Mr. Riley says. That change has been on display this entire year. In the third quarter of 2009, credit transactions for Visa and MasterCard reached $313 billion, an 11.58% decline over the same quarter in 2008, according to TowerGroup. Debit transaction volume for Visa and MasterCard was $303 billion, a 5.21% increase over the third quarter in 2008.

"Consumers are preferring to use their PIN debit card as compared to credit or even cash," according to Silvio Tavares, senior vice president of industry relations for First Data Corp., a transaction processor for merchants. PIN debit-card transactions, in which the consumer enters a numerical pass code, increased by 9% this Black Friday over last year, according to First Data, which processes transactions for sellers.

Watered-down rewards programs may also be keeping some shoppers away from credit spending. "I think that could be impacting the amount of people who are using their credit cards in their holiday shopping," says Bill Hardekopf, chief executive of LowCards.com, which tracks credit card usage.

Still, there's at least one area where consumers are sticking with credit cards: online purchases. "Credit does tend to be more actively used than debit transactions" for online shopping, says Mr. Riley of TowerGroup. "One of the good reasons for using credit online is the protections are better than using debit." If a debit card gets stolen, it may be harder to sort out fraudulent overdrafts.

Despite the holiday cutbacks, credit-card balances keep rising among U.S. consumers overall. The average credit-card balance went up to $8,083 in the third quarter of 2009, according to Mail Monitor, a credit-card direct-mail service from Synovate, a market-research firm. In the second quarter of 2009, it was $7,489.

"Some people are just maxed out on their cards," says Gerri Detweiler, a personal-finance adviser with a consumer-information site in San Francisco.