Paying Credit Cards Instead of Mortgages?

Paying Credit Cards Instead of Mortgages?

Check this out… According to TransUnion, which is one of the big three credit bureaus, credit card delinquencies are currently at their lowest level in 17 years.

Surprised? I am. Given all the tight job market, stagnant wages, and increasing food prices (among other thing), I wouldn’t have expected it.

At the same time, however, more Americans are falling behind on their mortgages. According to Charlie Wise, TransUnion’s director of research and consulting, “Consumers are protecting their credit cards. It gives them financial flexibility.”

Back in 2008, 4.3% of consumers were current on their credit cards but behind on their mortgages. Fast forward to 2010, when that number climbed to 7.4%. On the flip side, the number of consumers that are delinquent on their credit cards but current on their mortgages dropped from 4.1% to 3.0%.

So the numbers here aren’t huge, but there’s a definite pattern — and the relative changes are quite large. But why? Historically, people in financial trouble have tended to pay stay current on their mortgages while letting their other obligations slide. So why the reversal?

Experts say it’s because the housing market is so bad that consumers are being forced to make tough choices. As it becomes clear that they’re going to lose their homes, more people are choosing to protect the few financial tools they have left.

Whatever the cause, it’s an interesting — and potentially troubling — change.


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9 Responses to “Paying Credit Cards Instead of Mortgages?”

  1. Anonymous

    I agree, many people are so far underwater on their homes that they figure the only way out is to short sell/foreclose. If it will take years for them to get right side up, many people just stop paying. Not only do they want to keep the credit cards as a financial tool, but not paying the mortgage frees up money that can be used to pay the credit card. I could certainly find things to spend my mortgage payment on rather than the house.

  2. Anonymous

    My first thought is that there may be some number fudging: do they consider debt written off as still delinquent? This will mean that if they write off a lot of debt there would be less accounts delinquent and hence a decrease in delinquencies.

  3. Anonymous

    I thought that if you defaulted on your mortgage, your credit-card lenders would soon cancel the cards.

    If that’s the case, maybe the reason there are fewer credit card delinquencies is that for every mortgage default, one or more credit-card accounts are closed.

  4. Anonymous

    In a situation where a homeowner is forced to ration his or her money due to job loss, etc., I can see why the individual might be so discouraged about being deep underwater that making mortgage payments feels, right or wrong, almost futile–throwing good money after bad, in a way. It may also be that widespread media reports about how far behind mortgage lenders are on pursuing foreclosure is causing people to think they can stop making mortgage payments for a long time without any consequences.

    The revised HARP lets people refinance no matter how deep underwater their mortgage. Comment #4 is good advice: Visit with the lender to learn what options might be available. And find a housing counselor through the National Foundation for Credit Counseling (


  5. Anonymous

    As a real estate broker who handles many, many short sales, I can tell you that much of the problem lies in the system. Most of my clients are under-employed, not un-employed, meaning for some unfortunate reason, their collective household income has been substantially reduced. Many of my clients are in a position to make *some* payment but not the whole payment. The lender will not accept a partial payment. By the time they save enough for the whole payment the second payment is due, and the vicious cycle grows.The homeowner does the best they can to keep their commitments, paying the rest of their bills.

    Chase is one of the few banks that I see some pro-active help for homeowners. Several of my clients have received unsolicited offers to refinance their current balance at a lower rate without regard to current value and at absolutely NO cost to the homeowner. The new rates are at least point below their current rate, no PMI and permanently adjusted. These have closed without a hitch. I would advise everyone to contact their mortgage lender and ask if they have such a program.

  6. Anonymous

    Doesnt make a lot of sense but then people under stress or mania make some awful choices sometimes. What’s the stat on student loans? They are secured loans right? So even if you file for bankruptcy you will have to pay them. So, not sure why consumers are making credit cards a priority at all. I guess if you were short selling or foreclosing very soon, get yourself an apartment while your credit is good enough then let it all go to hell if you have no income.

  7. Anonymous

    I can see where it makes pragmatic sense if you are planning on declaring bankruptcy or live in a judicial foreclosure state (where the length of processing time keeps growing).

    Logic on the former is you do not have to declare all debts for cancellation in proceedings (thus ensuring still to have access to credit and assisting in rebuilding credit score). I worked with a man who ended up doing this with medical bill bankruptcy in the ’90’s, it worked out so he was still able to get a mortgage four or so years later. The latter motivation would be less shrewd and more living-in-the-moment mentality, sure the house will be taken away but I have today.

    Thankfully, I’ve never been in a position of either and will have paid off the HELOC remainder of the mortgage in short order. If forced to seriously consider bankruptcy, a planned strategy, keeping the debit burden I could bear, makes some sense verse trying to wipe everything clean.

  8. Anonymous

    If I remember correctly Suze Orman was telling people to do this a couple of years ago. The really sad part is that so many people believe they will lose their homes anyway. Very bad for the economy for the rest of us too.

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