It appears consumers are now so worried about compiling credit card debt that many have stopped using credit to make purchases, and are using their debit cards instead.
The total number of nationwide debit card transactions passed those made with credit cards for the first time ever in 2009, and is expected to do so again this year, a new report from Javelin Strategy and Research said. Visa saw a 7.3 percent decrease in the number of credit card purchases made, while debit card payments rose 7.9 percent. Similarly, MasterCard debit transactions rose 5.8 percent, and Discover Financial Services saw a 2.8 percent increase.
The study said 56 percent of consumers reported they had used their credit card in the previous month, compared to 87 percent who had done so in 2007. If this rate of decline continues, less than half of Americans – 45 percent – will take on credit card debt with regularity next year.
“Consumers are turning from one form of plastic to another,” James Van Dyke, president and founder of Javelin, told Bloomberg. “Credit cards are falling out of favor as cardholders become more cautious and look for more conservative payment methods.”
Two groups that are using debit cards rather than compiling credit card debt are young consumers and those with low income. The survey found consumers in their twenties are growing accustomed to using their debit cards more often, and thus, they will continue to do so into the future, eschewing the use of cash and checks.
In contrast, lower-income consumers tend to use reloadable prepaid cards, if they use cards at all, Javelin noted. This type of card is expected to become more popular in the future, as financial regulations put an end to things like free checking, increase fees and change rewards programs. Use of these cards could rise to 9.3 percent of all online purchases by 2014.
Not only have consumers curbed their spending, but they have also made a more concerted effort to pay off their credit card debt. Nationwide consumer credit has dropped for the last few months. This trend shows no signs of slowing down any time soon as the recession continues to make slow improvements.