Survey: homeowners pay credit cards before mortgages

Consumers who have both credit card and mortgage debts are increasingly likely to pay the credit card bill first, according to a recent report from the credit reporting agency TransUnion. This occurs, despite the risk of foreclosure, because of the relative speed at which consumers see negative consequences from the nonpayment of credit card and mortgage bills.

This payment trend was first seen in Georgia and in much of the country in 2007, when home values began to decrease noticeably. In 2008, 4.3 percent of homeowners chose to keep a credit account current while leaving a mortgage account at least 30 days overdue. Last year, 7.4 percent of homeowners did the same.

In 2010, more than half of homeowners surveyed made credit card payments before paying their mortgages. In contrast, less than 25 percent of survey respondents reported that they paid the mortgage and let the credit card account go delinquent.

TransUnion survey respondents stated that the shift is due to the increase in unemployment and the concurrent decline in home values throughout the country. Credit card holders who find themselves with less income often need their credit cards in order to pay for necessary everyday items such as fuel and groceries.

In addition, there is a significant difference among the two forms of debt in terms of grace periods for late payments. Mortgage companies take up to a year to repossess or foreclose on a home, while credit card companies cancel accounts after only one or two missed payments. Credit card minimum payments are also smaller and easier to manage than mortgage payments.

Survey respondents stated that they often intended to pay the mortgage first. However, they ended up doing the opposite in the majority of cases when they found themselves without the funds necessary to pay the mortgage or to buy everyday necessities.

Source: ABC News, “Consumers Still Pay Credit Cards Before Mortgages“, Eileen AJ Connelly, 31 March 2011