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Which goes 1st: Card or mortgage?

By Polyana da Costa ·
Wednesday, March 19, 2014
Posted: 10 am ET

If you were tight on money and had to choose between paying your credit card bills or your mortgage, which would you choose?

Plastic over picket fence

Traditionally, homeowners prioritized their mortgages over their credit cards but that trend shifted in 2007, when the housing market collapsed. As home values declined and unemployment rose during the crisis, financially distressed homeowners started making their credit card payments instead of their mortgages payments, says Ezra Becker, vice president of research and consulting for TransUnion.

The picket fence is on top again

Now that the housing market has stabilized, the consumer mentality has shifted back and, once again, homeowners struggling to pay their bills are prioritizing their mortgage payments over credit cards, shows a study released today by TransUnion.

The study looks at the delinquency rate for consumers with credit cards, a mortgage and an auto loan and analyzes the rate spread among the three loan types over the last decade.

Timing of the flip-flop

For example, the study shows that in September of 2009, 4.92 percent of consumers who met the study's criteria were delinquent on their mortgages, compared to 2.99 percent with credit card delinquencies. In September of last year, the mortgage delinquency rate was 1.79 percent and the credit card delinquency was 1.86 percent.

"People started moving towards that flip in 2012 but the shift happened in the third quarter of 2013," says Becker, co-author of the study.

Why the changes happened

As access to credit got tight during the crisis and many homeowners were underwater on their mortgages, many consumers started to view their credit cards as a more valuable asset than their homes, he explains. Consumers now have more access to credit and home prices have increased, so consumers have changed their behavior.

"The study did in fact verify that home value appreciation and depreciation was a key driver," Becker says.

Avoiding the repo man

But one priority didn't change much for consumers, even during the financial crisis. Forget the mortgage and the credit cards. When it comes to deciding what to pay first, consumers prioritized their auto loan payments.

"The conventional wisdom is people pay their mortgages first," he says. "But auto loan payments still came in number one."

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