financial services

People Pay Credit Card Bills Before Mortgage

credit card

Americans now rank credit cards as a higher repayment priority than mortgages, according to Cardbeat, a syndicated market research report published by Auriemma Consulting Group (ACG).

While consumers in previous years had always named their mortgage as the bill they would pay first, in the most recent survey they put mortgage payments in second place, after credit card bills.

ACG believes that this change is driven by two market trends, says Nancy Stahl, editor of Cardbeat. "First, credit has become tighter," Stahl says. "Issuers have cut credit lines, and cardholders are aware that missed or late payments can trigger rate increases or account closure." Cash-strapped consumers view their credit cards as their "lifeline," necessary for juggling daily living expenses, she adds.

"It is good news for credit card companies," she tells Marketing Daily.



At the same time, Stahl notes, mortgage foreclosures have become common, and many consumers have "underwater" or "upside down" mortgages, meaning they owe more than the current value of their home. There is not much mortgage companies can do to change this, she says. "If a person has an underwater mortgage, it will have an effect on how they prioritize their repayment," she says.

That said, mortgage companies should be proactive in reaching out to consumers, Stahl says. They need to let them know that it isn't just about losing their house/property, but that there are larger, longer-term consequences, like the effect on their credit rating, which is looked at by prospective employers and credit card companies.

"[Mortgage companies] should look at the best practices of some of the more sophisticated credit card companies," she says. "Credit card companies have a lot more experience in collections [as they are unsecured loans] than mortgage companies, which have historically been the most important to pay." Credit card companies have been using software for pre-delinquency for modeling of behavior. They look at customers who may be potentially at risk in early stages based on various factors, she says.

"We have also seen a growing tendency of best practices among some companies, using an integrated collections approach that is not product-specific," she says. "For example, I may have a credit card and a mortgage with Chase. Chase doesn't operate independently on these products, but they work together/cross product, trying to work with the person to develop a plan on how to pay bills."

The integration is key to this, Stahl says. It helps both the bank (which wants to get paid) and the consumer (who wants to borrow money via their credit card and mortgage).

Westbury, N.Y.-based Cardbeat surveyed 430 credit card users in October 2009.

1 comment about "People Pay Credit Card Bills Before Mortgage ".
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  1. David Ricketts from N-A, December 10, 2009 at 1:23 p.m.

    "That said, mortgage companies should be proactive in reaching out to consumers, Stahl says."

    Really?? Perhaps Ms. Stahl hasn't noticed but mortgage companies, unlike credit card companies, do not own or hold on to the mortgages they service anymore.

    Whereas a credit card company can be left holding the bag if their customer goes belly-up, mortgage companies have little or no interest in adjustments since they simply collect handling fees and own little or nothing of the actual mortgage debt.

    As for why Americans pay the cards off ahead of their mortgage, the banks created this mess when they had the bankrupcty laws rewritten to prevent customers declaring bankruptcy on credit card debt. If you want to know why the mortgage market imploded, take a close look at that change - it incentivised people to pay the plastic and hold out on their mortgage.

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