Celebrating without credit

Damaris Urbanek isn't using credit cards this holiday season.

With her husband out of work and their Miami home in foreclosure, she's only using the money she has on hand to buy gifts. Before tough times befell the family, Urbanek, who was in town over Thanksgiving to visit her daughter, used to buy "TVs, electronics, everything new" for gifts, she said. This year, she's selecting a few small things for her grandson, including the pair of Mickey Mouse pajamas she picked up on her trip to the Mall of America.

Urbanek is among a growing number of consumers who aren't pulling out credit cards for holiday shopping this year, relying on cash in the bank instead. This year, more than seven in 10 shoppers will pay with debit cards, cash or check. Of those, 43 percent of shoppers will use debit cards as their primary payment method and 25.7 percent plan on cash, according to a survey by the National Retail Federation. Both methods have been gaining since the economic slowdown took hold.

Credit card use for holiday spending peaked in 2007 and has been sliding ever since. This year about 27.6 percent of shoppers are planning to use credit, the lowest since 2002.

This pullback from credit is not just a holiday trend. After years of financing lifestyles with cash-out refinancings and zero-percent balance transfer offers, Federal Reserve data show consumers have reduced their revolving debt a record 25 months in a row. Since the end of 2008, consumers shaved $143.6 billion off the total, leaving us at $813.9 billion in September.

And a new report from the credit bureau TransUnion found that more than 8 million consumers stopped using their cards in the third quarter. Some had no choice -- their credit is shot and the bank came calling. Others have voluntarily put credit aside during the slowdown, figuring they'd better fine-tune their budgets and fluff up the cash cushions just in case.

Gail Perelstein, 57, prefers to use her debit card when she shops, although she has plenty of credit available. She said she's always been cautious about using credit but thinks she's even more cautious now. "I see so much around me," said the recently retired teacher about economic woes. "It's scary just to read and see so much and see people get into trouble," she said.

Others hear a lot about the economic troubles facing some Americans but have been mostly unaffected. Take Randy Knecht, a corn, soybean and cattle farmer from South Dakota, whom I found resting outside the White House Black Market store while his wife shopped for herself. With commodity prices up, they're doing well this year and haven't changed their spending behavior, focusing much of their trip on buying gifts for five grandchildren.

"For us it's been fine. We've been very fortunate," he said. They charge purchases and pay the bill in full each month in order to swiftly rack up airline miles.

Some Americans will take creative measures this year so they can give gifts without going into debt -- from making items to regifting gift cards to trading goods and services. Abbey McCrum, 26, has connected with a bartering group to provide her services as a hairstylist in exchange for items such as a Christmas tree.

"It's awesome because I'm not having to pay for any of my Christmas presents, because I'm able to cover it through working," she said.

Early reports show shoppers, tired of penny-pinching, are heading to the malls to buy presents for loved ones and snatch up bargains for themselves. That's good news.