Archive for April, 2011

More Homeowners Paying Credit Card Bills Over Mortgage

Wednesday, April 6th, 2011

According to a new report by the credit management company TransUnion, more U.S. borrowers are choosing to pay their credit card bills over making a mortgage payment; no doubt due in part to the recession.

Prior to the economic downturn, Americans worked hard to stay current on their mortgages before they paid their other large bills like credit cards and student loans. But now that pattern seems to be changing.

In the last quarter of 2010, 7.24% of U.S. homeowners were delinquent on their mortgages, but current on their credit cards. While Sean Reardon, the author of the study and a consultant for TransUnion, notes there was a decrease of 7.40% since the third quarter, the number of homeowners behind on their mortgage payments remains “72% higher than it was at the beginning of the Great Recession.”

The TransUnion report compared three groups: homeowners 30-plus days delinquent on their mortgage but current on credit cards; those current on their mortgage but 30-plus days behind on credit cards; and those who are 30-plus days delinquent on both their credit cards and their mortgage.

While conducting the report Sean Reardon found there were two primary drivers in making the U.S. “less cash dependent and more credit dependent.” He found Americans first adjusted their “payment hierarchy” from mortgages to credit cards just months after the financial collapse in 2007, and that high unemployment and a suffering housing market left many owing more on their homes than they were worth.

By the final quarter of 2010, 23% of all U.S. homeowners owed more than their homes were worth, according to business information provider CoreLogic.

The inability for struggling Americans to make large mortgage payments, combined with the credit card industry’s decision to tighten lines of credit, has put pressure on consumers to stay current with their credit. It didn’t take long for people to realize missed mortgage payments may have dire consequences down the road, but good credit now is the road to keeping food on the table.

In the chart below, the red curve denotes delinquent mortgages, current credit cards. The green curve denotes current mortgages, delinquent credit cards. The purple curve denotes delinquency on both:

graph mortgage vs credit

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