Can consumers live with or without credit cards?

Americans are going to have to curb their credit habit — either live with less credit or none at all — until the financial market gets flowing again.

“The current economy is essentially giving people the shock treatment,“ said Ed Mierzwinski, program director for U.S. PIRG, a consumer advocacy group.

“People are getting laid off. Their credit-card company is lowering their available credit limit, or they may not be able to get new credit,“ he said. “For many Americans who have been running on the debt treadmill, the economy may be a wake-up call for them.“

Because of the economy, rising delinquencies and credit-card issuers drastically cutting back available credit, experts say every American is going to have to rethink how they use credit.

Only people with the best credit may come out of these tough times relatively unscathed.

The lesson for consumers: “We are going to have to learn to deal with significantly less credit available and alter our spending habits,“ said Curtis Arnold, chief executive of CardRatings.com. “We’re going to have to learn to adjust.“

Consumers already have started to make changes.

They have increased the use of debit cards — which typically takes cash out of a checking or savings account — and they used more cash and wrote more checks this past holiday season, Arnold said. Layaway plans were resurgent, too.

The National Retail Federation polled shoppers in November and found that most did not intend to rely on credit for the bulk of their holiday purchases.

The survey found that 41.5 percent of shoppers planned to use debit cards to pay for gifts, compared with 40.1 percent in the 2007 holiday season. Those who expected to pay with cash in the 2008 season rose to 22.8 percent, compared with 22.1 percent a year ago.

Nearly 21 million consumers expected to buy on layaway, the survey found.

Meanwhile, credit-card use was expected to dip to 31.5 percent during the 2008 shopping season from 32.3 percent in 2007.

Some people still rely on credit cards to meet daily expenses such as food and gas,

American Banking Association chief economist James Chessen said. But many are being careful not to add debt. People are reducing debt and building up cash reserves, and that is a good strategy right now, he said.

The use of revolving consumer debt, mostly considered credit cards, declined 7.8 percent to $963.5 billion in December 2008 compared with 2007, according to the Federal Reserve Board.

Some Virginians have pared down to just one credit card, or none, and others are living without any type of credit.

Does that mean Americans should kick the credit habit, not just curb it? Can people live without credit?

They lived without using credit cards until Diner’s Club and the predecessor to Visa came along more than 50 years ago.

Still, they didn’t live totally without credit. Remember hearing your grandparents talk about store accounts, layaways, coupon books and saving money to buy things?

But “we’re not to that extreme yet,“ Arnold said about living without credit. “It would be tough. It has been so ingrained in our psyche as Americans.“

Greg McBride, senior financial analyst at Bankrate.com, said the idea isn’t to avoid credit: “The idea is to use credit responsibly. If it wasn’t for credit, who would be able to buy a house or car?“

Besides, “more and more, we’re becoming a cashless society,“ said Bill Hardekopf, chief executive of LowCards.com. Consumers use credit and debit cards at the gas pump, the supermarket, online, in restaurants and at the mall. People pay for just about everything using plastic.

“It’s hard to carry around the money you need to live off each day or week,“ Hardekopf said. “It’s just so much more convenient” to use a credit card.

Many consumers who use credit cards, though, are in deep financial trouble.

As the economy gets worse and unemployment creeps up, consumers have a harder time paying their bills, said Kenneth Clayton, senior vice president and general counsel at the American Banking Association.

Delinquencies are up and so are delinquent debts deemed uncollectable, Clayton said. Ultimately that translates to mounting losses for card issuers.

The banking association said consumer delinquencies rose in the third quarter of 2008 on home-equity, property-improvement, auto, boat, RV, mobile-home and personal loans.

Auto loans arranged through dealerships or other third parties as well as home-equity lines of credit saw the highest delinquency level ever, the association said.

Bank credit-card delinquencies declined slightly, though, and bank auto-loan delinquencies fell, too.

Fitch Ratings, a global credit-rating agency, said uncollectable delinquent debt on cards for the best credit customers rose to four-year highs in December.

The monthly rate that cardholders repay their outstanding balances fell to the lowest levels since mid-2004, the agency said.

Late payments continue to spike into 2009. Fitch said they topped record levels this month, and defaults rose sharply to just below all-time highs.

“U.S. consumers continue to struggle in the face of mounting pressures on multiple fronts, from employment to housing to net worth,“ Fitch Managing Director Michael Dean said.

At American Express, uncollectable delinquent debt, a measure of cardholder defaults, jumped to 6.7 percent in the fourth quarter from 5.9 percent in the third quarter.

And Capital One Financial Corp., one the largest employers in the Richmond area, set aside $2.1 billion at the end of the fiscal year for loan losses amid rising credit-card delinquencies. The McLean-based credit-card and banking company recorded a $1.45 billion loss in the fourth quarter.

“The net effect is credit issuers will have to be more prudent in the ways they offer loans to people,“ Clayton said. “There will be less loans out there.“

People with excellent credit may not be adversely affected, said Linda Sherry, deputy director of the advocacy group Consumer Action.

“We’re not seeing that consumers with great credit are being limited,“ she said. “People with not-good credit is where the problem is.“

“There are going to be folks that are going to be left out in the cold with very little credit,“ CardRatings.com’s Arnold said. “This is the reality. It’s in stark contrast to last year [at] this time.“

The credit crisis may be a healthy thing, experts say.

“If you don’t have use of a credit card, you will probably cut your spending, and that’s a good thing,“ LowCards.com’s Hardekopf said. “You will probably buy what you need, rather than what you want.“

Kenneth Daniels, professor of finance at Virginia Commonwealth University, said the household balance sheet will be better. “And we know the savings rate will go up because of this.“

Ultimately, consumers might be able to turn the tables on the credit-card industry and force it to give them cheaper credit and better terms, he said.