Survey finds rise in plans to avoid debt for holidays

CHICAGO - More holiday shoppers say that this year, instead of credit cards they will use debit cards and cash. Seven in 10 plan to use one of those two methods to pay for holiday purchases, according to a survey by the National Foundation for Credit Counseling.

But what consumers say they will do and what they do could be quite different.

"My question is, where are the folks getting the money?" said Gail Cunningham, spokesman for the foundation, who questioned results of her own organization's survey.

"I'm cynical about that. I doubt that they have [saved]. I hope I'm wrong. I hope they follow through with their good intentions."

Lower use of credit cards might be out of necessity. Since the credit crunch brought on by the financial crisis, many credit card users' cards canceled have been canceled or their spending limits have been lowered.

The trend away from credit cards began a few years ago.

Credit card use for holiday gift buying peaked in 2007, at more than 32 percent, and has trended lower since, according to the National Retail Federation.

This year, use of credit cards is expected to be the lowest since 2002, the organization said.

For consumers who end up paying for holiday purchases with plastic, the question is: Will they pay the balance in full when the bill arrives?

That's what Chicagoan Terry Keating, 52, plans to do. He said he'll use his American Express card this holiday season but plans to pay off all his purchases immediately.

He said he doesn't have a debt-free holiday season every year, but that's the plan for 2010.

"It doesn't make sense to me to go into debt," he said. "If I cannot afford it now, then I shouldn't be buying it."

A Consumer Reports poll found that 13.6 million Americans remain saddled with last year's holiday debt.

And fewer than half of shoppers plan to follow a holiday budget this year. That typically is a precursor to overspending and, potentially, debt.

Dave Jones, president of the Association of Independent Consumer Credit Counseling Agencies, said retailers' Black Friday and Cyber Monday too often become "Red Tuesday" for consumers.

Per capita holiday-related spending this year will be $689, according to the National Retail Federation.

If that amount were charged on a credit card with an interest rate of 18 percent and the card holder made only a 5 percent minimum payment each month, it would take four years to repay and would rack up interest charges of $225. That would boost the cost of the holiday 33 percent beyond what it would have been if cash had been used.

Some consumers are avoiding holiday debt, or compensating for not having credit available, by using layaway plans. These plans, brought back into vogue in recent years by such retailers as Kmart and Sears, allow shoppers to set aside items at the store and pay for them in installments over a number of weeks. Shoppers take home the merchandise after they pay in full. Retailers usually charge fees, often $5 or $10, for using layaway.

But even layaway fees can be avoided by stashing the cash in a cookie jar at home, then returning to the store to buy the item once enough has been saved.

The challenge with saving money at home, Ms. Cunningham said, is the "tyranny of the urgent," when saved money gets spent on various household needs.

"I think layaway is a terrific tool, particularly for those who don't have access to credit," she said.