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Credit card before mortgage

By Marcie Geffner ·
Friday, April 1, 2011
Posted: 8 am ET

Once upon a time, say, before the recent housing crisis, homeowners made every possible effort to make their monthly mortgage payment, even if that meant they couldn't meet other financial obligations.

Now, however, there's a new payment priority in which many homeowners choose to let the mortgage slide into delinquency and default while they continue to make the payments on their credit cards, according to a new study by TransUnion, which operates one of the largest U.S. credit-reporting bureaus.

The study, based on data from 27 million consumers' credit files, found that the "hierarchy reversal" had become even more widespread than had been expected. What's more, the pattern has continued for the past three straight years.

The percentage of consumers whose payments were current on their credit cards, but at least 30 days past due on their mortgage, declined in the most recent quarter studied. However, the percentage of people who paid their mortgage over their credit card was still 72 percent higher than it had been at the beginning of the recent recession, according to Sean Reardon, a consultant in TransUnion's analytics and decisioning services business unit.

Reardon said in a statement:

The latest data from our study show that the new payment hierarchy has persisted for longer than many industry experts initially believed, and provides evidence that consumers continue to adjust their payment behavior in response to their economic and personal financial environment.

An earlier survey, by Zogby International and commissioned by TransUnion, found that 79 percent of adults said they would prioritize their mortgage if they could make only one payment in the current month. Nine percent said they'd pay their credit card bill first, and 5 percent said they'd make their auto loan payment their top priority.

Yet in fact, 52 percent of consumers who defaulted on their mortgage in the fourth quarter of 2010 kept up their credit card payments while only 22 percent defaulted on credit cards and kept their mortgage payments current.

Comments, please: If you could make only your credit card payment or your mortgage payment, which would it be?

Follow me on Twitter: @marciegeff

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May 17, 2011 at 4:43 pm

It is all about interest rate late payment issues! If your mortgate interest rate went from 9.9% to 29% after one-late- payment, then mortgages would again become the priority! Credit card companies have WAY TOO MUCH POWER over consumers. Our President should put a cap on Credit Card interest rates, no matter of late payments, a cap of 10% would do... Look at what a bank or CC company pays you to borrow money (CD rates at 1% to 2%) and then they charge us 10% to 30% to borrow their money. A cap on CC interest rates of 10% would allow the economy to recover and still let the banks and CC companies make thier's...

Brandon W
May 17, 2011 at 10:21 am

With the loss mitigation departments at the banks telling struggling homeowners they can not open apply for a modification on a current loan this is a no brainer. People who are struggling to make a payment and have a rate adjustment coming up have to do something to get the attention of their mortgage company. All these people who took out a loan with poor terms or increasing loan rates were under the impression they could refinance later....later is here and their homes are underwater no way to refinance or sell. If they want to stay in the home long term the only option is to work for a modification to a payment they can afford over the long term.

May 17, 2011 at 9:11 am

The "Fair Market Value" of the house we purchased 4 years ago, is 100,000 less than what we owe on it.We will never have equity in it. When we purchased, we looked for a house with a mortgage WELL under what we were pre-approved for, and well within his combined income from military retirement and new teacher salary. Until two weeks ago, my teacher spouse did not have a contract for the next school year and my retail job pay is half what it was a year ago despite a promotion. If my spouse had not gotten another job in this area, we would have had to relocate, either short selling the house or forclosing. Houses in our development are not selling any other way. The credit cards, and other debts are coverable by his military retirement and my income and would have taken precedence.

April 06, 2011 at 12:38 pm

People who are "upside down" on the house and do not have big equity in it might choose to get rid of the credit card debt and let the mortgage slide into deliquency...

Barak Volner
April 03, 2011 at 2:24 pm

If you want to stay in your home, make certain you pay your lien holder. Unfortunately, consumers have it backwards.

April 01, 2011 at 3:58 pm

My husband and I own all the vehicles we have, so that relieves us from that burden. We also only carry one credit card with a small limit. It can be difficult, but mostly inconvienent, to live off cash in the bank but it is never a bother to be out of debt. If I ever had to choose, I would always pay my mortgage first. It's one of our biggest investments. I don't know how people can justify doing it backwards!

April 01, 2011 at 12:13 pm

Excessive interest rates, corporate greed and government apathy has pretty much killed our "American Way of Life". Most of us are living in the new reality...."what does it take to survive"???