| January 25, 2012

Consumers still lean on cash instead of credit for everyday purchases

The way people pay for small, everyday purchases has been changing a lot in the last few years. And these days, more consumers are relying on cash instead of running up credit card debt.

A recent study by Javelin Strategy and Research found that 79 percent of consumers made small purchases with cash in the previous seven days, according to a report from the Huffington Post. That’s compared with just 65 percent combined who used either credit or debit. However, experts say that while cash use is certainly not becoming less popular, it’s also not becoming more popular.

During and following the recent recession, consumers began to rely more heavily on debit and cash than credit to make minor purchases, the report said. Debit in particular likely grew more popular as regular card users might have avoided carrying cash but didn’t want to add to their outstanding debt.

But with the future of debit use uncertain due to banks adding new fees, some consumers may grow cautious of that as well, the report said. It’s expected that credit card use will tick up once again this year as consumers return to normal spending habits.

As a consequence of consumers using their debit and credit cards less often, banks are looking for new ways to generate revenues, the report said. Some are testing ATMs that dispense prepaid cards in addition to cash. That’s because prepaid cards are generally seen as a new frontier in banking, especially because they’re very popular with consumers who cannot afford other bank accounts or credit cards.

Another way banks are trying to generate revenue is by once again offering credit cards to more people, and increasing the value of rewards programs for those with good credit, the report said. By broadening credit standards and making their accounts more attractive, card issuers hope consumers will be more eager to borrow again.

During the recession, millions of consumers saw their credit card payments fall so far behind that their lenders wrote the balances off as uncollectable. These charge offs took huge chunks out of their credit scores, and led to them being unable to find new lines of credit. But with lending becoming easier again, many consumers are now taking advantage.

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