Credit Cards or Mortgages: What Do YOU Pay First?

According to a recent report released by Reuters, many Americans are choosing to pay their credit card bills each month before they pay their mortgage payments.

It’s no surprise that millions of people are having financial woes these days. As a result of the economic problems, consumers are prioritizing their payments each month. They have less money to allocate to their bills and many of them are foregoing their mortgage payments in favor of paying their credit card bills. According to the report, the number of Americans who were current on their credit card payments but delinquent on their mortgage during the third quarter of 2009 increased to 6.6 percent, which was a 0.3 percent increase over the previous quarter. During the same quarter of 2008, only about 4.9 percent of the people who were delinquent on their mortgage payments were current on their credit card payments.

These statistics do not bode well for a housing market that has already had huge setbacks and problems in the last couple years. Sean Reardon of TransUnion’s analytics department said this trend goes against all “conventional wisdom.” In the past, consumers have always put a priority on their secured obligations, such as their mortgage payments and car payments. But this doesn’t look like the case in recent years. However, some consumers are saying it makes much more sense to do it this way because being current on their credit card payments allows them to have a little extra money for groceries and necessities.

As if those numbers weren’t staggering enough, consider these statistics: During the fourth quarter of 2007, the number of people with low credit scores who were current on their credit card payments but delinquent on their mortgage payments was 19.1 percent. By the end of the third quarter of 2009, that number rose 10 percent to 29 percent! That’s a lot of people paying their credit cards and allowing their mortgage payments to go by the wayside.

Ezra Becker, the director of consulting and strategy at TransUnion, said there are several factors that are contributing to this problem. The housing market is certainly a major factor, but adjustable-rate mortgages and the job market are also contributors to the problem. As a result of these problems, consumers are redefining how they manage their finances and restructuring the way the feel about meeting their credit obligations.