Should I Make My House Payment or Pay My Credit Card Bill?

For the first time in history, it appears that consumers are prioritizing their credit card bill payments over their mortgages—choosing to pay down the balance they’ve accumulated on their cards over making their house payments.

A recent report compiled by credit bureau TransUnion showed that 6.6 percent of people were on time with their credit card payments but behind on the mortgage in the third quarter of 2009; the same report showed that only 4.9 percent were behind in mortgage payments in the third quarter of 2008.

This shift in priorities is just one of the big changes Americans are facing in the wake of the housing market’s bust, rising unemployment, and mounting personal debt.  People are focusing their energies on paying off their credit card debt because so many homeowners have seen the values of their homes dip dramatically and the mortgage is almost an afterthought.   An increasing number of folks have accepted that a foreclosure on their home is in the not-too-distant future and don’t want to put any more money into their homes than they already have.  They reason that credit cards are simply more valuable—they can be used to purchase essentials like food , gas, or clothing right now and be paid off at a later date; the money needs to be in the account for a mortgage payment and many folks just don’t have it on hand.

This reasoning goes against all of our parents’ advice and what financial experts continue to preach to cash-strapped consumers, but it’s the reality for many of us.  As more and more folks find themselves facing the difficult decision of which debt to make first, the short-term usefulness of the credit card is winning out in many instances.   It’s a lose-lose situation either way, according to most financial experts.  The time frame between the foreclosure notice and the foreclosure itself has been extended, so it may seem as though there’s more time to get caught up, but it’s very easy to delay making payments, often for months.  This can quickly cause another snowball effect of debt—one most folks are trying to dig themselves out of by focusing on their credit cards.

Credit cards are no guarantee, either.  Having a large amount of debt or a history of delinquent payments can cause long-term damage to a person’s credit report; negative information will have lasting effects on major purchases well into the future.   Many folks opt to use their credit cards to make mortgage payments, which can easily get them into twice as much trouble very quickly.

If it’s a tough call between paying on the credit card or the mortgage, financial experts universally agree that keeping up with mortgage payments should be top priority.  Banks aren’t known for their understanding for customers who get behind on their payments; for credit cards, even paying the minimum can help to pay down some of the debt.   One suggestion is to develop a workable budget that puts the mortgage first so that is automatically paid every month, then figure out what other expenses can be reasonably paid after the mortgage.  It’s never wise to default on any monthly bill, but the mortgage is particularly important—falling behind on this payment could make it much more difficult to get a loan to purchase a home in the future.

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This entry was posted on Sunday, February 28th, 2010 at 9:00 am and is filed under Debt & Consolidation. 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.