By choice or by force, more U.S. consumers are putting away their credit cards as the financial crisis reshapes attitudes toward spending and debt.

Wal-Mart Stores

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[WMT  Loading...      ()   ] noticed that customers were pulling out the plastic less and less this year as the financial turmoil intensified. The world's biggest retailer said the portion of transactions using credit cards was falling after three consecutive years of double-digit gains.

"Customers have maxed out on their credit limits," Eduardo Castro-Wright, the head of Wal-Mart's U.S. stores, said at a recent conference. "They can't use (credit cards) more."

A survey on U.S. holiday shopping intentions, conducted for Reuters by America's Research Group, found that 60 percent of shoppers plan to use credit cards less this year to buy gifts. Some of that reflects efforts by banks to clamp down on credit lines, but it is also a symptom of rising anxiety among consumers worried about how to survive a recession.

By definition, credit lets consumers smooth out their spending by borrowing against future income. When confidence is running high, appetite for debt increases, and when the mood turns pessimistic, demand for credit dives.

The latest borrowing binge was likely exaggerated because it coincided with the housing bubble. Rising real estate values fostered a sense of economic security that is now deflating faster than home prices.

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"The consumer has completely lost confidence in the future," said Richard Hastings, consumer strategist at Global Hunter Securities. "They don't want to make long-term financial commitments."

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First, consumers cut spending on homes, which usually come with a 30-year commitment otherwise known as a mortgage. Then came cars, typically financed over five years or so.

Now the pullback is spreading to all but essential goods. In October, for instance, U.S. retailers' sales fell a record 2.8 percent to a seasonally adjusted $363.7 billion—the largest drop since this series began in 1992, the Commerce Department said. In comparison, September's U.S. retail sales slipped a revised 1.3 percent.

That's ominous for the economy at home and abroad. The American consumer's spending accounts for two-thirds of U.S. economic growth and has been one of the most reliable engines of world growth for the past decade. So when the U.S. consumer puts the wallet away, it reverberates around the world.

Not only are American retailers hurting, but U.S. data released Thursday showed that both imports and exports fell sharply in September. The World Bank thinks global trade will drop next year for the first time since 1982.

A Mountain of Debt

U.S. households have accumulated an additional $8 trillion in debt since 1998, bringing the grand total to $14 trillion, according to the most recent figures from the U.S. Federal Reserve. As banks grow wary of extending more credit, that may prove to be the high-water mark for many years to come.

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While much of that pile of debt is made up of mortgages, credit card usage also jumped toward the tail end of the housing boom. Now it is slowing. JPMorgan economist Joseph Lupton expects consumer credit to contract by 8 percent in the coming year.

That will hit lower-income consumers particularly hard.

"In light of the weak labor market as well as falling share and home prices, the credit card is for many households the only chance to maintain current consumption," said Harm Bandholz, an economist with UniCredit in New York.

Among the 20 percent of households with the lowest income, credit card debt equals about a quarter of income, he said.

For the wealthiest quintile, it is around 3.5 percent.

The delinquency rate on credit cards rose to 4.9 percent in the second quarter of this year, according to Federal Reserve data, the highest since the first quarter of 2002 when the economy was recovering from the last recession.

The percentage of credit card debt that banks have written off is even higher at 5.47 percent, and that figure will likely rise in the coming quarters. Deutsche Bank analysts said charge-offs were up more than 50 percent last month at six of the 11 credit card issuers that they survey.

In No Mood to Shop

Private consumption fell in the third quarter that ended in September, and economists think it will drop again in the current period and in the first quarter of 2009. It would mark the first time since quarterly statistics began in 1947 that consumption fell for three straight quarters.

That is precisely what the U.S. government is trying to avoid. The Treasury wants to use some of its $700 billion rescue fund to guarantee consumer lending in the hope that doing so will get money flowing again.

It may not be enough because even those with plenty of credit appear to be curbing their spending.

In the 2001 recession, consumer spending remained positive even as the economy contracted. The current episode has taken a much heavier toll on confidence across a wider swathe of the population.

Luxury retailers that are normally deemed recession resilient are hurting badly, as evidenced by weak sales at chains such as Saks

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Simply put, shopping does not feel good right now, with or without easy credit.

"It's no longer cool to display ostentatious spending habits when those around you are losing their jobs and homes," said Darrell Rigby, head of the global retail practice at consulting firm Bain & Co.

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