NEW YORK — Shoppers are doing all they can to keep their credit cards in their wallets this holiday season.

They're paying with cash, direct debits from bank accounts, taking advantage of free financing and even cashing in frequent flier miles.

A desire to stick to a budget and to avoid interest rates that have risen sharply have helped drive a marked shift away from credit cards. Banks have also reduced the amount of credit they're making available, even to low-risk clients.

"Consumers are looking for discipline in their spending levels that they can achieve from using cash," said Bryan Eshelman, managing director in the retail practice of consultant AlixPartners, whose recent survey of shoppers revealed their top concern was eliminating personal debt.

Often, the switch to cash or debit cards means lower costs for stores, though merchants miss out on getting data on their customers' shopping habits from credit card transactions.

Layaway and other payment methods increase costs, but they can be offset by new opportunities to grab sales from customers who would otherwise not able to buy.

Bill Hampel, chief economist at the Credit Union National Association, describes the consumer switch as "seminal."

"People are trying a lot of new behavior in how they're spending and how they are paying for it in response to a very scary economy," he added.

Some new habits, particularly using more cash, will likely linger, with unemployment expected to remain high for several years and credit lines less generous.

Among the ways payment methods are shifting:

CASH AND ITS COUSINS: Credit cards accounted for 60 percent of transactions at malls operated by Taubman Centers so far this holiday season, down from 70 percent last year, according to an internal survey.

Earlier this year, U.S. debit payment volume exceeded that of credit for the first time, Visa Inc. reported.

PayPal, an online payment service owned by eBay Inc. that lets shoppers pay directly from their bank accounts in addition to traditional credit, saw its active accounts surge 20 percent in its latest quarter compared with a year ago.

A report from the Federal Reserve issued Dec. 7 showed how Americans borrowed less for a record ninth straight month in October.

ALTERNATIVE PAYMENTS: Stores have responded by promoting alternative ways to pay and offers that defer payment for several months.

Sears and Kmart are now offering store card holders who spend just $99 or more a chance to borrow at no cost for six months. A year ago, shoppers had to spend at least $199.

Others are prominently touting Bill Me Later, which offers free financing, usually for 90 days. Gourmet food purveyor Harry & David put the Bill Me Later logo on the front of its holiday catalog. If the purchase is not paid off on time, customers get charged 19.99 percent interest that accrues over that time.

Merchants pay fees for Bill Me Later and PayPal, which take anywhere from a 1.9 percent to 2.9 percent cut. That's slightly lower than credit cards interchange fees, which range from about 2 percent to 3.5 percent, according to Curtis Arnold, founder of Card Ratings.com, a credit education site.

Forrester Research estimates that PayPal and similar payment services, which is any method that's not just typing in one's credit or debit card, now represent 11 percent of total online payments.

Layaway, which lets shoppers pay over time interest-free while the store holds on to the item, also has made a comeback. This payment method had its roots in the Great Depression but became passe in the past two decades with the rise of credit cards.

Toys R Us, whose customers hadn't requested layaway in the past, has seen interest spike and has come around to a different way of thinking. It's paying off.

The nation's largest toy store chain unveiled layaway this fall for big items like bikes and video game consoles. It says customers were largely parents who wanted to be able to pay over time and those who were looking for a place to store their gifts.

"In our case, layaway had more to do with convenience and peace of mind," company spokeswoman Kathleen Waugh said. She added there was no stigma attached to the service — if it means customers can get the right toy for their child.

GETTING CREATIVE: Customers such as Loretta Prencipe, a freelance marketing professional, are getting creative. In Christmas seasons past, the Alexandria., Va., resident and her husband had charged hundreds of dollars on two credit cards. This year, she used cash for most purchases, while trading in 13,000 frequent-flier miles from United Airlines to buy a $100 gift card from a restaurant — she plans to also use the miles to buy several $25 gift cards from Barnes & Noble.

"We are trying to make smarter decisions with our money," said the mother of two teenage daughters.

Sergio Pinon, founder and chief marketing officer at e-layaway.com, which offers online layaway for about 1,000 merchants, has seen his business quadruple from last Christmas. He had expected it to double.

Even more interesting, he said, is that customers started setting aside money for gift cards for themselves starting this past summer as a way to budget their overall holiday spending. That has resulted in the average value of single gift cards rising to $100 from $25 a year ago.