We're opting for debit over credit when we swipe

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debit card swipeA research firm predicts that credit card use could fall to 45% of all transactions this year if current trends continue. According to Javelin Strategy & Research, our use of credit cards has been dropping steadily; we used credit cards for 56% of all transactions last year, which was a steep drop from the 87% of all transactions in 2007, when our obsession with plastic peaked.

"The main reason I would say is the recession, because it really affected consumer spending behavior and habits," Beth Robertson, director of payments research at Javelin, told WalletPop in a phone interview. "The savings rate went up, consumption overall went down and people shifted to methods that helped them more carefully monitor their expenditures."

What's picking up the slack? Growing use of debit cards plays a big role. This is better for consumers, since debit cards generally don't let you spend what you don't have (watch out for those overdraft "protection" programs, though!). Also growing in popularity are the use of gift cards and prepaid cards, particularly the reloadable kind that can act as a kind of de facto bank account for Americans without traditional banking relationships. Robertson calls these prepaid offerings an "emerging category of payment."

Part of the reason for the increase in the use of these cards is the restrictions in the CARD Act that place limits on students' and young adults' ability to obtain credit. Using prepaid debit cards give young people the convenience of plastic without the buy-now-pay-later setup that previously trapped many young people in escalating spirals of debt.

If credit card use continues to fall, Javelin predicts that credit card issuers will become more generous with their rewards and other incentives issued to coax customers into using the cards. "They may be adding more targeted rewards programs," Robertson says. There's a catch, though, in that these perks are likely to be doled out only to the most credit-worthy customers, in contrast to the easy-credit era of several years ago.

If you are one of the lucky Americans who has banks competing for your business, you could see more reward offers that give you points for everyday shopping trips such as gas and grocery purchases, Robertson says. These purchases are often made with debit cards because of the convenience factor, so card issuers are betting that the right incentive could get you to pull out your credit card instead of your debit card.

As we've reminded you before, there's nothing wrong with using your credit card to get your rewards, but only if you're disciplined about paying it off in full every month. Otherwise, the interest charges will cost you more than even the most generous reward program will offer.
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