Consumers lay off credit, pay with debit cards, cash

NEW YORK — Cash or credit? For more Americans, who have already maxed out their credit cards or are just trying to manage their spending better in the tough economy, the answer is increasingly the old-fashioned one.

Retailers like Wal-Mart Stores, Target and J.C. Penney are noticing a marked shift away from credit cards in favor of cash and debit 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 Americans' long love affair with credit cards and is one of the changes in consumer behavior that have 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.

"I think this is a new way of life," said Robert Smith, of Loves Park, Ill., who along with his wife has been using cash and debit cards to finance their spending, including vacations, since they paid off their credit-card debts in July. "I like to be able to know that we paid for something. I hate monthly payments when you use a credit card."

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, J.C. Penney has seen swings in spending around payday cycles over the past three months.

That's common for discounters such as Wal-Mart but a rarity for a mall-based department store — suggesting that Penney's middle-income customers are feeling the pinch.