It turns out that talk really is cheap. In a survey done in February by Zogby International, consumers said that if forced to choose between paying a credit card or mortgage bill, 79 per cent would pay their mortgage. The reality is, however, that more than 7 per cent of homeowners are shunning mortgage payments but paying their credit card bills, according to a new study by the credit bureau TransUnion.
For the past three years, more people who were 30 days delinquent or more on their mortgages still made their credit card payments than vice versa, according to a sampling of TransUnion’s data on Americans’ credit histories.
Consumers’ behaviour has changed as many are struggling to get by with still-declining home values and stubbornly high unemployment rates. California and Florida, the two states that were most affected by the real estate mess, had the highest delinquency rates, according to TransUnion.
But now that the recession is over, consumers should be back to normal. Analysts predicted that by the end of 2010, consumers would begin to prioritise their payments and revert back to the traditional payment order. When times are good, or at least better, consumers typically pay mortgages first, car loans second and then credit cards. This is not happening, so what is going on?
Let’s face it — it can be a lot easier to make a simple credit card payment than it is to even to begin to get a grip on the ballooning mortgage bills that have created a mess for many Americans. Many homeowners now owe more than their homes are worth, and some are even walking away from their mortgages entirely. And consumers have more freedom when it comes to plastic — you can’t buy food or pay gas bills with a house.
The bottom line is that when times are tight, the price paid by defaulting on a credit card is more immediate. In Florida, foreclosure proceedings can take up to 18 months. Credit card companies are like the strict teacher that takes attendance five minutes before class even begins. They call and call until they get their payments. Sometimes they threaten delinquent cardholders with higher fees or even a potential lawsuit.
On the other hand, if you ignore your mortgage payments for too long, you will probably lose your home, even if a backlog of foreclosure cases gives you a few months’ reprieve. So make keeping a roof over your head the priority, and the next time a credit card company calls and demands payment, negotiate a payment plan. Perhaps you can work toward debt freedom by transferring balances to a low-interest card or begin by making a very small payment each month. Do something small now, and your big problems will eventually become manageable.