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Pay mortgage or credit card?

By Janna Herron ·
Wednesday, September 25, 2013
Posted: 5 pm ET

In a shift from the recession, when credit card payments beat out mortgage payments, Americans are now putting the same weight on paying their home loans as their cards.

A survey released last week from credit reporting bureau TransUnion found that the 30-day delinquency rates on mortgages neared the delinquency rate on credit cards last year. The rate on mortgages was 1.91 percent versus 1.82 percent for credit cards. From 2009 to 2011, the margin between the two ranged from seven-tenths of a percentage point to more than a point.

"With the unemployment coming down and home prices stabilizing, even appreciating in many areas, what we found is the payment hierarchy is reverting to the historic norm," says Ezra Becker vice president of research and consulting at TransUnion. "People are putting increasingly more emphasis on paying their mortgage."

Before the recession started, borrowers consistently paid their mortgages before credit cards. But as home values plummeted and homeowners lost equity, that truism turned on its head and caught many lenders by surprise. TransUnion first captured this change in consumer behavior in a 2008 survey.

"If you asked any lender in 2005, what's the first thing consumers will stop paying if they run out of money, they would say credit card," Becker says.

Becker said the most recent study focused on how home appreciation and depreciation correlated with the change in payment prioritization. What TransUnion found was that places with the greatest home value loss saw the strongest tendency to pay credit cards over mortgages. That flipped when those areas began experiencing home price appreciation.

"But if you look at Dallas, which had no big housing shock, we don't see a lot of movement in spread between credit card and mortgage delinquencies," he says.

What has stayed unchanged is that auto loan payments remain the top priority for consumers, a position that didn't change during the recession or after.

"A car gets me to work," Becker says.

What do you pay first? Did the recession affect that?

Follow me on Twitter: @JannaHerron.

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July 03, 2014 at 10:18 am

Don't have a credit card, pay cash for a good used car and font have a mortgage payment more than a fourth of your take home pay.

September 25, 2013 at 10:14 pm

I just thank my lucky stars that I pay off my credit card every month and have refinanced at 2.75% so that I don't have to make a choice.