Consumers Choose to Pay Credit Cards vs. Mortgage

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A New Horizon Credit Counseling Notices a Change in the Pattern Due to Result of the Recession

Credit Counseling - 800-556-1548

Credit Counseling - 800-556-1548

Stark added, “This change in the traditionally expected payment priority is clearly related to home devaluation and high unemployment”.

A study just released by the credit reporting bureau TransUnion shows a shift in consumer credit card paying habits as a result of the recession. The new pattern finds consumers more likely to pay their credit card charges before they pay their mortgage; and this trend has occurred for the last three years in a row. Steven Stark, General Counsel and COO for A New Horizon Credit Counseling Services, stated “This just confirms what we have seen among our clients; they would prefer to default on their over leveraged mortgages in favor of paying off their credit card balance.” Stark added, “This change in the traditionally expected payment priority is clearly related to home devaluation and high unemployment.”

The study found that the new payment pattern has become increasingly popular among consumers, with the percentage of consumers who are delinquent on their mortgages and current on their credit cards rising to as high as 7.4 percent in Q3 2010 (from 4.3 percent in Q1 2008). Conversely, the percentage of consumers who are delinquent on their credit cards and current on their mortgages decreased to its lowest level ever at 3.03 percent in Q4 2010. This rate had been at 4.1 percent in Q1 2008.

Not unexpectedly, the lowest credit-scoring segment continues to be the highest number of consumers delinquent on their mortgages. The rate for consumers in this segment who were delinquent on their mortgages but current on their credit cards during Q4 2007 was just over 19 percent, but rose to 30.4 percent in Q4 2010.

However Stark cautions, “we have also noticed that while consumers have struggled to remain current on their credit cards, these balances continue to grow steadily larger for a significant majority of the same population that has been hardest hit by unemployment and failed businesses during the recession. Anyone finding themselves in this pattern should consult with a reputable credit counseling agency to review what options are available to them.”

A New Horizon Credit Counseling Services is a nonprofit debt management organization that has been helping consumers since 1978. For more information about their programs, contact 1-800-556-1548. They can also be found on the web at http://www.anewhorizon.org, or reached via email at slieberman(at)anewhorizon(dot)org.

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Stuart Lieberman
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