Consumers Choose to Pay Credit Card Debt over Mortgage Loans

Mortgage payments are taking a back seat to credit card debt according to a new report released by TransUnion this week. The report found 7.24 percent of those who have at least one credit card and a mortgage loan were 30 days late on the mortgage but current on the credit card in the fourth quarter of 2010.

Borrowers Have Chosen Card Debt Over Homes for Nearly 3 Years

While one might assume this activity started recently as a hangover from the recession and economic crisis, the report revealed consumers began favoring credit cards over mortgage loans almost three years ago.

TransUnion explained that in the first quarter of 2008, 4.3 percent of consumers nationwide were making card payments while allowing their mortgage loans to fall behind, compared to the numbers from 2010.

In contrast, 3.03 percent of consumers were 30 days late on their credit card payments but current on their mortgages in the fourth quarter of 2010, compared with 4.1 percent in early 2008.

The data shows that many consumers are choosing to pay their credit cards over mortgages. But why is this happening?

Credit Card Regulations Tougher

Experts speculate there are a number of reasons why consumers are choosing credit cards over mortgages and the biggest one has to do with credit card reform.

Because regulations are tighter on banks, in order to eliminate risky customers, they will now shut a card down if a consumer misses one or two payments. After six months of non-payment, the account will be written off as uncollectible.

In contrast, homeowners may have up to a year negotiate with their lender before actually facing eviction, especially with the government working to save the housing market through proposed modification programs.

Since many consumers rely on credit cards to buy essentials like groceries or pay for gas and can’t afford to lose them, at least for the time being, experts believe they may focus more on paying down their credit cards than keeping a roof over their heads.