Consumers Paying Credit Card Debt Instead of Mortgages

During and immediately following the recent recession, many consumers worried more about paying their credit card bills on time, instead of their mortgages. Now some indicators reveal that trend may be rearing its head again.

The latest Credit Risk Index from the credit monitoring bureau TransUnion recently found that consumer credit risk rose at the end of last year for the first time since 2009, and a major driving factor in that uptick was delinquency on mortgage payments, according to a report from Your Money Matters. This may be a consequence of the nation’s top lenders being more eager to extend credit to consumers who had defaulted in the past, leading more to worry about which bills to pay, not how to pay both bills, and many, it seems, are choosing their credit cards.

“That’s the reverse of the traditional payment hierarchy,” Charlie Wise, research director at TransUnion, told the site. “Now they’re paying their bank cards first and their mortgages last.”

Wise noted that, in previous years, consumers would default on their mortgages last, allowing their credit cards and then auto loans to lapse first if they absolutely had to, the report said. But because some consumers who had lost access to credit as a result of past defaults may place a greater value on having access to those cards once again, many might prioritize them over their mortgage payments.

However, experts say this type of account management can lead to significant financial problems. First and foremost, missing a mortgage payment instead of a credit card bill can have the negative effect of causing consumers to lose their homes if they fall too far behind. In addition, the bills are typically far larger than those for most consumers’ credit card balances, and therefore, it can be more difficult to get back on track if there’s a mortgage bill that goes unpaid for more than a month.

Further, facing foreclosure will typically cause considerably more damage than a missed credit card payment or two. However, the ideal plan involves paying both, for obvious reasons. Consumers who find themselves making this type of tough decision even once should take it as a sign that they may need to rein in their credit card spending.