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Surprise! Consumers Still Paying Credit Cards Before Mortgages

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Many Americans are still paying credit card bills before they pay their mortgage, a trend that continues to surprise financial experts, according to a new study released by the TransUnion credit reporting agency.

“(T)he new payment hierarchy has persisted for longer than many industry experts initially believed,” Sean Reardon, who wrote the report, said in a press release.

The percentage of consumers who are delinquent on their mortgages but current on their credit cards was 7.24% in the last quarter of 2010, TransUnion found.  While that represents a slight drop from 7.4% the previous quarter, it’s still more than twice the percentage of people who are current on their mortgages but delinquent on their credit cards.

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This means that more people are paying off their credit cards before they pay their mortgages. This has experts confused because the entire housing bubble was predicated on the notion that Americans pay their mortgages—no ifs, ands, or buts.

This traditional view made a lot of sense.  A mortgage or a car loan are secured debts, meaning they’re secured by the value of a real asset. If you fail to pay up, the lender can come and take the house or car back. But credit cards are unsecured debts, which means when you fail to pay them, not much happens. The companies can hike your interest rate. They can sue you. If things get bad enough you may have to declare bankruptcy. But you’ll still have a roof over your head.

As soon as the Great Recession hit, however, that all changed. Now the number of people who are late on their mortgages but current on their credit cards is 72% higher than it was pre-recession, TransUnion found.

Another surprising thing is how long this trend has persisted. Many experts expected that as the economy and employment rates slowly rebounded, and home prices stabilized, fewer people would walk away from their houses.

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So far anyway, that hasn’t happened.

“Although many industry analysts believed that a reversion to the conventional payment hierarchy would ensue once the recession had concluded, this has not been the case,” according to the company’s press release. “To the contrary, this study found that the hierarchy reversal has become even more widespread.”

What’s also interesting about this trend is that it runs counter to how most consumers say they would react if they suddenly couldn’t afford all their bills. In a poll by Zogby International cited by TransUnion, 79% of adults said that if they could pay just one bill a month, it would be their mortgage. Only 9% said they would only pay their credit card bill.

Image: Roman Pinzon-Soto, via Flickr.com

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