Smith, who has four children ages 7 to 13 and owns a motivational training company called Drive and Grow Rich, says his business is down 20 percent this year, and since he is saddled with a mortgage, he doesn't want to get back into debt.

While the credit crunch is teaching consumers to be more "financially prudent," it's creating a lot of pain for both consumers and stores, said Curtis Arnold, founder of CreditRatings.com.

One sign of how strapped consumers are for credit — and buying only what they have the cash for — is that for the first time in 17 years, Penney's has seen swings in spending around payday cycles over the past three months.

That's common for discounters like Wal-Mart, but a rarity for a mall-based department store — suggesting that Penney's middle-income customers are feeling the pinch as well. Penney's President and Chief Merchandising Officer Ken Hicks noted that the chain hasn't seen swings in spending around payday since about 1991, when the U.S. was entering a recession

At Wal-Mart, the volatility in spending around payday — a drop in spending in the days before, followed by spending bursts right afterward — has become even more pronounced since September. Chief Financial Officer Tom Schoewe told The Associated Press that shoppers are now unable to buy even necessities in the few days before payday.

Such swings became more dramatic last fall, but subsided when shoppers received their government rebate checks this past spring.

Eduardo Castro-Wright, president and chief executive of Wal-Mart's U.S. division, told investors last month that credit card payments as a percentage of total payments fell 7.4 percent so far in the current fiscal year, which ends in January. That's a big reversal from the robust double-digit growth rates in credit cards over the past three years, he said.

Target executives told investors late last month that it's seeing lower credit card usage among its shoppers for the first time since 2001-2003.

At Penney's, Hicks said that use of the company's store credit card was flat during the third quarter. The use of credit cards issued by other parties declined by a couple of percentage points as a percentage of overall payment, he noted, while cash was up by the same amount. Hicks said he hasn't seen a decline in credit card use in five or six years.

Scott Hoyt, senior director of consumer economics at Moody's Economy.com. said that Federal Reserve data has never shown an annual decline in credit card use, but he acknowledged that there isn't any solid payment data. Visa Inc. said that debit card growth is coming at the expense of cash and checks versus credit cards.