As Economy Softens, Consumers Advised To Be Credit-Wise

THE Christmas rush is on, recession style. While retailers wring their hands over projected meager fourth-quarter profits, credit watchdogs caution consumers not to bury themselves in debt.

Economists expect consumers to spend less this Christmas season, a distressing thought to retailers, who normally count on Christmas sales for half of their annual revenues. Some retailers reported good sales over the Thanksgiving weekend. But many, like Sears, Roebuck & Co., said the season is off to a disappointing start. University indexers at the University of Michigan blame the most severe three-month drop they have ever recorded in consumer confidence - from June to October - on recession fears.

This year marks an abrupt change from the 1980s, when ``consumers threw caution to the wind by taking on more and more debt,'' says Elgie Holstein, director of Bankcard Holders of America. Millions of Americans today face serious financial problems from high personal debt levels, slowing economic growth, and escalating energy prices.

Credit-card use is so prevalent, says MasterCard International vice president Steve Apesos, that diners at fast food restaurants buy hamburgers on credit. ``When you start paying 18 percent interest on that Burger King purchase, then you're in trouble,'' concedes Mr. Apesos, ``but for many people, credit is a way to manage finances.'' For monthly paid employees, it's more convenient to put the money in the bank and budget expenses with a credit card, ``with one easy payment.'' Given the trend, he says, ``we're becoming a cashless society.''

Of the 86 percent of Americans 18 or older who hold a credit card, some three-quarters are on a revolving debt plan, paying off their purchases just a portion at a time.

``Household budgets are threatened by high credit-card debt ... disguised because most credit-card issuers require their cardholders to pay each month only 3 to 4 percent of the total amount they owe,'' says Mr. Holstein. ``You can carry several thousand dollars in credit-card debt by paying only $100 per month. High interest rates combined with low minimum monthly payments mean it can take you years to pay off a credit card completely.''

According to American Bankers Association and Federal Reserve statistics, consumer debt now totals $737 billion. The interest charged on credit-card balances ranges from 13 percent to 20 percent. Delinquent payments bring higher charges.

Bonnie Jansen, spokeswoman for the US Office of Consumer Affairs, urges debtors to maintain contact with creditors and to keep up minimum payments. But for those who find it difficult to manage their own debt, there are a broad range of services.

At Debtors' Anonymous meetings across the country, ``the only requirement for membership is the desire to stop using any form of unsecured debt,'' a spokesman says.

A liaison between debtor and creditor, the National Foundation for Consumer Credit (NFCC) is an umbrella organization for local organizations that counsel consumers. Like other consumer-debt organizations, NFCC offers debt management, working out new budgets, and payment plans to creditors. ``Our financially troubled families have an average of 10 creditors. The consumer makes one monthly payment to us, and we parcel this out to the various creditors,'' says NFCC vice president Jay Muzychenco.

Ms. Jansen reminds consumers that credit counseling organizations are generally ``funded by the creditors. They have an incentive to get you to pay back as much as possible before you declare bankruptcy.''

Despite all the debt, there are some winners. Business is pleased with card purchases that wouldn't have been made with cash. ``Paying with a credit card is less painful,'' says a Sears department-store cashier. ``It makes the money seem less real.''

But the money is very real to the bank - another winner. ``Credit cards are the biggest profitmakers for the banks - they're 85 percent of Citibank's profits,'' Apesos says.