Consumer Law

Consumers Paying Credit Card Bills Instead Of Mortgages

By M. Stan Herring

Yahoo! Finance has posted an article about the rise of consumers paying their credit card bills instead of mortgages.

A recent study developed by TransUnion found the percentage of Americans who were current on their credit cards but behind on their mortgage increased to 6.6 percent in the third quarter of 2009, up from 4.3 percent in the first quarter of 2008. Meanwhile, the share of consumers making mortgage payments on time but behind on their credit cards moved in the opposite direction, sliding from 4.1 percent to 3.6 percent over the same time period.

A simple reason for this is that it takes much longer for a home to be foreclosed than for a credit card to be revoked. Foreclosure can take anywhere from six months to a year and a half, whereas a credit card account can be cancelled in a few months.

With the high rates of unemployment, people are viewing their credit cards as more valuable than mortgages, using their cards to buy necessities like gas and groceries. Also, the tight economy has made credit more difficult to obtain, so consumers see keeping their credit as more important.

A credit card's ability to finance basic necessities--and the swift consequences of default--make the trends highlighted in the TransUnion study less startling, especially in a time of high unemployment and widespread negative equity. "For a borrower who has got a significant [cash] shortfall, it is a completely rational decision [to pay off a credit card bill while defaulting on a mortgage]."

If you would like more information on foreclosures, please check out our articles The Three Stages Of Foreclosure In Alabama and Wrongful Foreclosures In Alabama.

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Full post as published by Alabama Consumer Blog on February 10, 2010 (boomark / email).