Consumers opting to pay credit cards over mortgages

Thursday, April 7th, 2011 By

A man poring over his bills contemplates a Post-It note that reads “Pay off credit cards!”

Paying credit cards has been the latest consumer debt payment trend, notes TransUnion. (Photo Credit: CC BY-ND/Adjustable Rate Mortgage)

Debt payment patterns in the U.S. were changed drastically by the recession, and the shift to paying credits cards first, over mortgages, is a perfect example. Traditionally, this had never been the case. Yet when the subprime mortgage crisis put many homeowners underwater, addressing credit card debt seemed the more feasible choice, reports the Huffington Post.

TransUnion has tracked the disturbing trend

Mortgage delinquency is now viewed as almost acceptable in the current housing market, a trend that may have costly repercussions. According to credit bureau TransUnion, 7.24 percent of U.S. homeowners were late on their mortgage but current on their credit cards in the fourth quarter of 2010. In the previous quarter, it was 7.40 percent, but the drop can’t be viewed as good news, said TransUnion consultant Sean Reardon.

“(It is now) 72 percent higher than it was at the beginning of the Great Recession,” he told the Huffington Post.

By comparison, only 3.03 percent of U.S. consumers chose to fall behind on their credit cards in order to keep up with their upside down mortgages. This is the lowest known percentage for the category on record.

When the tide turned

Not coincidentally, TransUnion found that more U.S. consumers began to pay more attention to their credit cards than their mortgages just a few months after the financial collapse began in 2007. Booming unemployment and a poor housing market submerged scores of subprime borrowers as the country shifted toward an unhealthy dependency upon credit.

The growth in number of underwater mortgages is staggering. By the final quarter of 2010, 23 percent of U.S. homeowners had upside down mortgages, according to business data provider CoreLogic. That amounts to 11.1 million residential properties in negative equity, up from 10.8 million (22.5 percent) in the third quarter of 2010. Another 2.4 million homeowners have less than 5 percent equity, making the total percentage of negative and near-negative equity mortgages 27.9 percent nationwide. But it hasn’t just been subprime borrowers opting to pay their credit cards instead of their mortgages, notes Reardon.

“Initially it was,” he said, “but it spread across all risk segments. It’s now an issue at the national level.”

Sources

CoreLogic

Huffington Post

Refinance your mortgage and whittle down credit card debt

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