TransUnion, the third-largest American consumer credit reporting agency, has recently released a report showing more and more consumers are paying their credit card bills instead of their mortgages. The study revealed that Americans who are current on their credit cards but delinquent on their mortgage increased from 4.3 percent in the first quarter of 2008 to 6.6 percent in the third quarter of 2009.

“This goes against conventional wisdom and that has always been that, when faced with a financial crisis, consumers will pay their secured obligations first, specifically their mortgages,” said Sean Reardon, author of the study and a consultant in the analytics and decisioning services business unit of TransUnion.

This dramatic change is primarily tied to the recession, vast unemployment and home values dropping below what is owed on the mortgages. It’s estimated that nearly 25 percent of homeowners are “underwater.” In this position, many homeowners can’t reconcile putting money into their home that has lost so much value.

Paying on their credit cards is tied directly to keeping pace with daily necessities. Credit cards can buy groceries, gas or clothing. Card companies aren’t nearly as patient as mortgage lenders when it comes to payment - miss a couple of months and they are likely to close your account. And with access to credit being so tight, it’s not likely one would be able to get another card.

Defaulting on a mortgage and moving on to a foreclosure may take months, if not a year or more, to be complete. You might say time is on their side.

Reflecting on this whole matter, Keith Gumbinger of HSH Associates said, “This sort of thing is what keeps bankers awake at night.” It’s likely that many defaulting homeowners aren’t sleeping very well either.

TALK BACK: If you had to choose between paying your mortgage or a credit card bill, which would you pay first? Post your comments below.

Posted by Sharon Walker

Tags: paying your mortgage

This entry was posted on Monday, February 15th, 2010 at 6:00 am and is filed under Current Affairs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.