SAO PAULO (Reuters) - As Fernanda Castro waits in line to pay for a new blender at a store in a Sao Paulo shantytown, the hairdresser recounts horror stories of friends who fell into debt and struggled to get out.
"I don't want that to happen to me," she said. "I avoid using the credit card now. I'm afraid of it."
After a spending spree in recent years, Brazilian consumers are acquiring more conservative habits. But in a hopeful sign for the economy, they are still pressing ahead with big-ticket purchases of TVs and living room sets by relying on a tactic that is still new to many - saving.
That was the picture that emerged from about 20 informal interviews that a Reuters reporter conducted recently while spending a day at the Paraisopolis branch of Casas Bahia, Brazil's No. 1 furniture and home appliances retailer.
Despite a recent economic slowdown, the store buzzed with eager shoppers as its speakers blasted Brazilian country music out onto a street in Sao Paulo's largest slum. Children were jumping on an imitation-leather sofa as their mother checked out an Android phone, while a family of six was excitedly shopping together for a new washing machine.
Many were members of Brazil's emerging middle class, which include the approximately 30 million people who escaped from poverty over the last decade. Yet as their stories illustrate, keeping shoppers in stores has become harder over the past year.
Consumer defaults in Brazil rose 15 percent in 2012, according to credit research company Serasa Experian. About one in every six households is now overleveraged, according to a recent report by Santander.
Castro can still shop, though, because her salary has nearly doubled in the past two years to 3,000 reais ($1,523) a month. That has enabled her to put money aside, a relatively new habit in a country where a painful history of inflation, which only ended in 1994, long engendered a culture of spending paychecks as quickly as possible.
"I am saving a lot more to get what I want," Castro said.
That is why many economists believe Brazil's consumers still have room to spend more and support an economy that has otherwise stagnated in the past two years, as sectors like manufacturing struggle.
The more bullish analysts tend to see recent consumer debt woes as a painful but perhaps necessary step in Brazil's economic maturity, rather than a bubble that has burst.
According to this view, many lower middle-class consumers who gained access to credit for the first time in the late 2000s and got burned by their inexperience at the turn of the decade are now slowly working their way out of debt, aided by low unemployment and high wage growth.
That would be the best scenario for Brazilian companies like Casas Bahia parent Grupo Pão de Açúcar, Brazil's biggest diversified retailer, as well as discount chain Lojas Americanas and apparel sellers Cia Hering and Lojas Renner.
"There are people who think we lost a vector of growth - I disagree totally," said Octavio de Barros, chief economist of Banco Bradesco in Sao Paulo.
"Credit will continue to play an important role as incomes continue to rise," said Barros, who expects the growth rate of household consumption to accelerate to 4.5 percent this year from 3.1 percent in 2012.
Indeed, some economists believe that consumers who are now swearing off debt altogether are being a little too rash.
Brazil's central bank cut the benchmark interest rate to a record-low 7.25 percent last year. As recently as 2006, rates were at high-teen levels, a legacy of the country's inflationary days.
President Dilma Rousseff's government, meanwhile, has pressed banks to continue lowering spreads, the difference between what they pay in interest and what they charge for loans, to lower borrowing costs to consumers.
"People will return to leveraging themselves," said Jankiel Santos, chief economist with Espirito Santo investment bank in Sao Paulo.
Santos cited increasingly attractive interest rates in the banking system, where the average cost of borrowing fell in December for the 10th straight month, to 28.1 percent. That is still high by rich-world standards, but a record low for Brazil.
Regardless, debt remains a bad word for people like Ronivaldo Dos Santos, a 45-year-old night watchman who was milling about the smartphone counter at Casas Bahia.
"Nowadays I'd rather wait until I have money in my pocket before I buy something," he said. "I've already had my name fall onto the credit watch list, and I don't want that to happen again."
Rose Rosean, a 25-year-old maid shopping for a new six-burner stove, put it more succinctly: "I'm paying cash from now on."
Several customers said they were saving for even bigger purchases, such as a new car or house, a sign that confidence in the medium-term future remains high.
Part of that optimism is due to a rise in employment in the formal part of the economy, rather than the black market. That has given many low-income Brazilians an unprecedented ability to look ahead and plan their finances because they can count on a regular salary.
"The 'anxiety rate' of families is much lower than it was," Bradesco's Barros said. "They have never saved as much as they are saving now."
Economists highlight several risks that could make life more complicated for consumers as they try to recalibrate their finances. Foremost among them is that Brazilian companies, discouraged by the country's recent flat economic growth, could start making large-scale layoffs.
That might snowball into a bigger problem as consumers start defaulting on their debts. However, there has been no sign of this to date; unemployment has continued to fall and reached a record low of 4.6 percent in December.
One pillar of support for consumer credit may be the stores themselves. Casas Bahia, like many Brazilian retailers, has its own in-house financing operation.
Roberto Fulcherberguer, the company's commercial vice president, said Casas Bahia, which has spent decades working with lower-income customers, had a "very low and stable" default rate.
While banks may refrain from extending credit to those without formal jobs or steady incomes, Casas Bahia takes a more personal approach.
"Fathers will introduce their children to Casas Bahia, and they will get credit because I know the father," Fulcherberguer said. "He wouldn't get credit anywhere else, but I have the relationship, so I trust him."
That may keep people like Jose Jucinaldo looking toward the next item on their wish lists.
"I won't be making any big purchases for a while because I need to pay off debts, though I still have my eye on a bigger TV," said Jucinaldo, a cook at a Paraisopolis lunch counter. "A 32-inch Sony LCD screen. That's next."
($1 = 1.97 Brazilian reais)
Editing by Brian Winter, Kieran Murray and Lisa Von Ahn