Mortgage vs. Credit Cards

A study released last week touched on a topic that’s probably very poignant for many Americans these days: when faced with a choice of paying one bill or the other, which gets paid and which has to wait? What’s particularly painful about this decision is when the bills in question are your mortgage and your credit card payment.

Traditionally, mortgages are the first thing most homeowners pay. After all, few things are more important that the roof over your head, right? But for families struggling to make ends meet, especially those 23% of homeowners with “under water” homes because they owe more than the home is worth, making that mortgage payment can feel like throwing money down a well when viewed cynically. (Another application of the “sunk costs” principle that I’m so fond of quoting.)

So what do you do when you’re unenthusiastic about paying a mortgage you can’t afford, for a home that’s not worth it, when you have to continue struggling to put food on the table? For an increasing number of Americans, you pay your credit card bills, so that you can continue using them to purchase necessities like food and utilities. And you hold your breath, hoping that the bank will take a long awhile to finally kick you out of your home. It’s a lousy situation with no good solution, but many people are opting to see how long they can hold on.

According to the study by Transunion, in the fourth quarter of last year 7.24% of homeowners were delinquent on their mortgage but current on their credit card payments. (Believe it or not, this is actually an improvement from the third quarter, where 7.40% of homeowners were in that situation, but it’s 72% higher than just a few years ago before our economy tanked.)

By contrast, in the fourth quarter of last year only 3.03% of homeowners in the study were current on their mortgage but behind on their credit cards. This is the largest percentage on record, and surprised the hell out of me. It does not bode well for a swift recovery of our housing market, that’s for sure.

You can see the trending on the chart below, which shows the percentage of homeowners current on one but 30 days delinquent on the other, as well as the percentage that are 30 days delinquent on both:

I suppose it underscores the growing reality that many Americans face these days: they’ve lost faith in the dream of homeownership, but still depend on their credit cards to get them through the month. It’s a sad state of affairs.

Here’s hopin’ neither you nor I find ourselves weighing these options, m’kay?

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