Experts suggest using cash to buy gifts

HOUSTON

Dana Marlowe loves the holiday season, from decorating the house to buying gifts for family and friends. But that holiday joy all fades too quickly when the calendar turns and the bills arrive.

"When January comes around, it's like reality shows up in your mailbox," Marlowe said.

So this year, she and her husband decided to put the credit cards away and use cash for holiday spending instead.

"We have a spreadsheet for it and we're going to be able to follow it, track it down to zero so that post-holidays, we don't have any credit card bills to pay off," Marlowe said.

She's in good company. While consumer spending is up by 2.2 percent this year, none of the major credit card companies have seen any increase in activity, and most have seen a drop in transactions.

John Ulzheimer of 2StepCredit says the still-shaky economy is partly to blame.

"Cash gives them the ability to control budgetary restrictions. They're going to spend less if they have cash versus access to credit cards," he said.

And Jim Brown, former Director of the Center of Consumer Affairs at the University of Wisconsin, adds recent changes in credit card laws have forced many people's hands as well.

"A lot of issuers have lowered consumers' lines of credit. They've raised fees," Brown said.

But it's not just credit. Gift cards have dropped in popularity this year, too. Brown believes people are getting tired of all the restrictions these cards impose.

"If you don't use it for a month, it loses 5 percent of its value, or if you don't use it in 12 months it expires. One thing you can say about a dollar bill is if you have a dollar bill a year from now in your pocket, it's still a dollar bill," Brown said.

But Ulzheimer predicts only a temporary dip, in this case, because of protections provided by the Card Act.

"The Card Act now allows consumers who give a gift card to another consumer to rest assured that that card is actually going to remain almost fully intact for five full years," he said.

As for Marlowe, she's determined to keep the cards in her wallet this holiday season, to ensure a debt-free new year.

"It's critical to know how much you're going to spend so you're buying season doesn't get out of control," Marlowe said.

Shoppers may find even more incentive to pay in cash. A clause in the financial reform bill allows retailers to lower prices for those who pay in cash by 2.5 percent -- that's about how much the retailers have to pay when someone uses a credit card.

So now credit card companies are fighting back with financial bonuses to those who spend a certain amount on the card.