On Christmas Shopping Lists, No Credit Slips

Christmas will no longer be on credit for many shoppers, despite tempting offers from retailers and credit card companies trying to coax the plastic out of consumers’ wallets.

The lowest percentage of shoppers in the 27-year-history of a national survey said they used credit cards over the Thanksgiving weekend, while the use of general credit cards like Visa and MasterCard fell 11 percent in the third quarter from a year earlier, according to the credit bureau TransUnion.

“Cash is the route I’m taking this year, from past experiences with credit cards and being in debt and trying to pay it off for so many years,” said Liz Gonzalez, a community-college employee in Signal Hill, Calif. Her debt problems started two Christmases ago, when she charged the gifts that turned into the bills that sent her life into disarray. Ms. Gonzalez, 40, still owes $2,200 from that Christmas, and said her recent divorce had been caused in part by the stress of debt.

So this year, she is buying gifts only for her two children, and will use cash to stay on a $500 budget.

“I was spending so much with them,” she said of the credit cards. “I lost control.”

Britt Beemer, chief executive of America’s Research Group, a survey firm, said that was a common sentiment. “The consumer really feels a lot of pressure from previous debts, and they just aren’t going to dig themselves into that kind of hole,” he said.

After the Thanksgiving shopping weekend, the group found that just about 17 percent were paying with credit — just over half of last year’s level and the lowest rate in the 27 years it has conducted a survey.

Some people are shunning credit cards for budgeting reasons, while others do not have a choice. More than 15 million Americans lost their cards because of strict credit-card regulations that were passed last year, or when issuers cut back on credit during the recession, said David Robertson, publisher of The Nilson Report, a credit card industry newsletter.

If consumers like Ms. Gonzalez are trying to be careful this holiday, retailers, banks and credit card companies are hoping for a little less caution. The amount that consumers said they spent over Black Friday weekend, a crucial shopping period, was up more than 6 percent this year from last year, according to the National Retail Federation.

When people overspend, credit card issuers reap profit from consumers who pay only part of their bills. Shoppers using retailers’ branded cards tend to spend more and visit stores more, said Robert S. Drbul, an analyst at Barclays Capital. So all are offering big incentives to get people to use plastic.

The Chase Freedom and Discover More cards, for instance, are offering $100 bonuses when new credit card customers spend a certain amount within the first three months, along with 5 percent cash back on holiday purchases at department stores and other categories.

Citibank is giving Dividend cardholders 5 percent back on spending at department, clothing and electronics stores through Dec. 31. Target is giving its cardholders a 5 percent discount on purchases, Neiman Marcus is advertising extra rewards points on most purchases on certain days this month, and Sears has been running a variety of no-payment, no-interest offers on its credit cards throughout the holidays.

“The credit card companies are falling all over themselves trying to make those rewards even better,” Mr. Robertson said. But, with customers moving to cash or debit, the companies are “simply less profitable,” he said.

James Hansen has been avoiding credit cards for months. He began accumulating debt when he went on short-term disability leave from his job as a maintenance engineer about three years ago, just after getting married and having a second child.

“Half of my payments were interest,” said Mr. Hansen, 34, who lives in Kihei, Hawaii. “I’m still working on paying off the bills.”

This holiday season, he said, “I’ll buy a few gifts with cash if I can. It’s not going to be easy.”

Even for people with steady income through the recession, like Ms. Gonzalez, credit is no longer attractive.

In 2008, with a new baby and a teenage son, plus a big extended family, she would go grocery shopping using her Sam’s Club and Costco cards, and add Christmas gifts to her cart. “It was so convenient,” she said.

She knew she was charging a lot — she also had Macy’s and Kohl’s cards, and a State Farm Visa that was carrying a balance from an earlier Costco card — but she thought cash-back rewards programs would help.

“In the back of my mind, I was thinking, ‘Well, I’ll get extra cash at the end of the year,’ ” she said. But on the Costco card, for instance, she got about $80 back — a fraction of the $4,000 she had charged, or the $3,000 on her Sam’s card. Mortgage and car payments piled on the debt.

“With the interest rates, it just seemed like I never paid it off,” she said.

She had to face up to the debt when she and her husband began looking for a bigger house to accommodate their growing family. Ms. Gonzalez said she had been paying the bills, and the couple had not discussed their finances in detail until they began house-hunting around Christmas 2008.

“There was too much debt,” she said. That stress, she said, helped lead to divorce.

“One of the main causes of the divorce — I was married for 17 years — other than miscommunication and growing apart, the money was a big one,” she said.

Ms. Gonzalez had to account for how much she owed when she filed for divorce in 2009. She had hit the limit on the Costco and Sam’s cards, and owed smaller amounts on the department store cards. Based on a segment she had seen on “Oprah,” she made a list of what she could pay, and began paying it off little by little.

She has now paid off the State Farm, Sam’s and department store cards. She still owes $2,200 on the Costco card, where her interest rate went up after a few late payments. Ms. Gonzalez hopes to pay that off, finally, by the spring, so she can qualify for a home loan. (She moved in with her mother after the divorce).

To avoid the temptation to charge gifts again, she opened a savings account where she has put spare cash throughout the year — $5 when she skips buying lunch, $10 when she is reimbursed for work expenses. The $500 will go to a camera for her son and clothes for her daughter.“I’m very strict right now,” she said. “I didn’t have a choice.”