NEW YORK (MainStreet) — Nearly half of Millennials plan to use their debit or check card to buy gift items this season instead of swiping their credit cards, according to the National Retail Federation.

When it comes to how shoppers will pay for their gifts, 38% will use their credit card, the most in the survey’s history and up from 28.5% last year. One in five shoppers will use cash and 38.4% will use their debit or check card. Checks are rarely used, with only 2.1% of consumers using them.

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Credit cards remain a favorite among people 65 years or older with 56% how prefer to use them while only 17.7% of 18 to 24 year olds will use credit cards, the NRF survey found.

“A 10% increase in credit card use for holiday shopping strongly suggests that consumers are ready to begin spending, but are financially ill-prepared to do so,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling, a Washington, D.C.-based non-profit.

While some consumers are charging their purchases to earn reward points or as a convenience, this could be detrimental for people who already carry debt over from month to month, she said.

“Adding to this burden could result in self-inflicted financial ruin,” Cunningham said.

More than half of Americans are worried about credit card security, according to a recent Lexington Law survey. The survey also found that 50% of Americans are fearful of credit card security breaches when shopping with their credit cards this holiday season while 29% say the risk of identity theft due to a credit card breach would prevent them from using a credit card this season.

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Cash is becoming more popular among shoppers with 65% who said they have used or plan to use cash to pay for their purchases compared to 61% who plan to use credit cards when they shop this holiday season, the survey found.

“After so many high-profile security breaches this past year, these kinds of consumer attitudes really aren’t a surprise,” said Randy Padawer, a consumer advocate for Lexington Law, a Salt Lake City-based credit report repair provider. “What is surprising and perhaps disconcerting for retailers, is just how many consumers say they prefer cash instead.”

Consumers can stay on top of any irregular debit or credit card activity by setting up personalized alerts, including alerts for any changes made to accounts such as an email or phone number change, online banking sign-in errors or passcode resets that could be a sign of fraudulent activity, said Marc Warshawsky, digital solutions executive at Bank of America in Charlotte, N.C.

Despite the availability of banking alerts, a recent Bank of America report found that only 28% of consumers receive mobile banking/financial alerts on their smartphones.

“When using their smartphone while shopping, Bank of America customers can feel safe knowing their personal information and account details are never stored on their phone,” he said.

Many Millennials have decided they do not want to accumulate credit card debt since they have witnessed the Great Recession and saw people suffering from it, said Erin Ellis, a financial educator at Philadelphia Federal Credit Union.

“Using debit ensures that they do not accrue a credit card balance burden,” she said. “By using debit rather than credit, Millennials will never have to pay interest on a purchase. They will not face a credit card bill they cannot afford to pay in full.”

While avoiding credit card debt is a good idea, never or rarely using one means it is hard for Millennials to establish a credit history. Credit history is key when consumers need to rent a house or apartment, purchase insurance or get a job, Ellis said.

Millennials are not alone and many shoppers prefer to use cash or debit cards. A majority of consumers who plan to shop in stores on Black Friday intend to pay with cash, with 38% who prefer it while 34% plan to use debit cards and 24% are likely to use credit cards, according to a survey.

For online purchases on Black Friday and Cyber Monday, 46% expect to pay with credit cards and 43% expect to pay with debit cards.

Online shopping is one of the riskiest ways to use a debit card,” analyst Jeanine Skowronski said. “Credit cards offer better consumer protections. This is especially important given all of the data breaches that have occurred over the past couple of years.”

Millennials are scared of spending money that they don’t otherwise have, said Luvleen Sidhu, 28, chief strategy and marketing officer of BankMobile, the Wyomissing, Pa.-based mobile bank.

“They are a risk adverse generation with 60% of them not using credit at all,” she said. “Debit cards are also convenient and that replaces the advantage that credit cards have always held. Millennials like to be in control of their money and they do not want to owe any more than they already do – such as large school loans.”

--Written by Ellen Chang for MainStreet

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