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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Saturday, August 2, 2008 Save a Buck: switching from credit to debit cards Associated Press NEW YORK -- As Americans see their home prices plunge, bills climb, and credit lines shrink, they are swiping their credit cards less and their debit cards more -- and Visa and MasterCard are still raking in the fees. Debit card use has been catching up to credit cards for years, but the weak economy has cemented debit as a major U.S. revenue driver for card processors. U.S. credit card use hasn't dropped off, but it is growing at its most anemic pace yet compared with debit. "Credit card spending in general is much softer" in the United States, said Visa Inc. Chief Executive Joe Saunders in a conference call with analysts late Wednesday. "It's not down, but it's marginally up, in the low single digits. Our debit card spending, on the other hand, has continued to grow and is very robust." MasterCard Inc.'s results revealed a similar trend. Within the United States, MasterCard's gross dollar volume on credit and charge cards inched up 0.7 percent during the second quarter -- slower than in previous quarters -- but gross dollar volume on debit cards soared 15.8 percent. Some of the disparity is due to people switching from cash and checks to debit, but a good deal of the difference reflects a shift away from credit amid a flagging economy, executives and analysts say. "The economic environment is pretty tough," said MasterCard CFO Martina Hund-Mejean during a call with analysts Thursday. She said consumers are continuing to shift their spending from discretionary items and more toward nondiscretionary items such as gasoline, food and health care. People tend to use debit for their everyday spending, and credit and charge cards for other items, Lehman Brothers analyst Bruce Harting wrote in a note earlier this week. What's also appearing to dampen credit card spending is the decision by banks such as JPMorgan Chase & Co. and Citigroup Inc., which issue MasterCard and Visa cards, to lower many cardholders' credit lines as defaults mount. Visa's Saunders said reduced credit lines did not contribute significantly to Visa's slowdown in U.S. credit card spending growth, but MasterCard's Hund-Mejean cited it as a factor. "We also do believe that the housing prices and the restrictions in credit for consumers have an impact on consumers utilizing their cards," Hund-Mejean said. To be sure, credit card spending still comprises a major portion of Visa and MasterCard's revenues. And U.S. credit card use is still heavy compared with other types of borrowing, such as mortgages or auto loans. The Federal Reserve reported earlier this month that the 3.6 percent increase in May's total borrowing was due mainly to credit card borrowing. However, many have attributed that month's jump to consumers' anticipation of stimulus checks from the government. Visa's profit rose 41 percent in the April-to-June quarter to $422 million, or 51 cents a share, up from $299 million in the same period a year ago, before the company went public. MasterCard posted a $747 million loss for the second quarter after taking a $1 billion after-tax charge related to an antitrust settlement with American Express Co. But its results still surpassed the expectations of analysts, who exclude one-time items from their forecasts. Disregarding the AmEx settlement charge, MasterCard's profit rose to $276 million, or $2.11 a share, on a 25 percent jump in revenue. Debit or credit? You can usually save money by using your debit cards for purchases rather than your credit card. But it's not always that simpler, especially if you're good about paying your credit cards in full each month. Things to consider: Debit Think about paying for overdraft protection. The fees for overcharges can be $35 or more without it. You have to pay only $50 in fraudulent charges if you report them within 48 hours. But if you take more than 60 days to report, you could be out all of it. Credit Credit can carry some steep interest rates, especially these days. If you do pay it off each month, you essentially get an interest-free loan. Credit makes it easier to return shoddy goods. It's easier to deal with fraudulent purchases. There is usually no charge. Many cards reward you based on what you spend.

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