When consumers are confronted with a monetary crisis, they are most likely to opt to pay their credit card bills first before paying their mortgage obligations, reported Trans Union in a study released earlier this month.
Sean Reardon, the author of the study and a Chicago-based consultant, said that, formerly, consumers with financial difficulty would first make sure they covered their mortgages first before covering their credit bills. However, he said that priorities seemed to 'flip' during the January to March quarter in 2008. Since then, the study reports that this trend has been 'picking up steam' as more and more individuals seem to take more pragmatic measures.
Recent statistics reveal that about 7 out of 100 consumers have bad records on their mortgages, but are on time with their credit card payments during July to September 2009. In the same period, about 4 out of 100 didn't pay their credit bills on time, but were compliant with their mortgages.
Reardon said that the subprime downfall and rising unemployment are both big factors attributed to the phenomena. He said that people think it would be much easier for them to skip on their mortgage payments (especially when their houses are not building equity), than to 'neglect' their credit cards to cover up daily expenditures.
About two years ago, from July to September 2007, the situation appeared to be reversed. Back then about 4 out of 100 customers were not prompt with the mortgages, but where on time with their credit obligations. About 5 out of 100, however, lagged in their credit payments but were current on their mortgage premiums.
In the two states that suffered the most during the burst housing bubble, Florida and California, consumers had a higher likelihood of 'taking care' of their credit cards first before mortgage payments.
About 10 out of 100 consumers in California had delinquent records on their mortgages but had good ratings on their credit cards during the July to September quarter in 2009. But, about 3 out of 100 had a reverse situation.
About 12 out of 100 in Florida lagged on their mortgage obligations but were prompt on their credit cards. About 4 out or 100 were in the opposite situation.
Trans Union, headed by Sean Reardon, conducted the study among consumers who were found to have at least one mortgage and one credit card. The data examined were 30-day credit card delinquency data and 30-day mortgage delinquency data. The span of the data used was between the April to June quarter of 2008 and the July to September quarter of 2009.