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Skipping the Mortgage to Pay Your Credit Card


Fewer consumers are up to their eyeballs in credit card debt these days — but for some, a lower credit card balance is coming at the expense of the mortgage.

The average consumer has an average of $6,355 in credit card debt, according to a CreditKarma.com report released today — 18% less than this time last year. Consumers are getting better about paying on time, too. Last week, a study from credit reporting bureau Experian found 20% fewer consumers are 60 days late on their credit card payments than were in 2007, while a separate study from TransUnion this week said the 0.6% who are 90 days late is the lowest in 17 years.

Consumers are reacting to the increasingly punitive measures that credit card companies take when cardholders miss payments, including penalties and higher rates, says John Ulzheimer, president of consumer education at SmartCredit.com. Ironically, that’s coming at the expense of payments to lenders that are seen as more lenient, particularly mortgage lenders. The Experian study found that 25% more mortgages are 60 days late than were in 2007. Prioritizing credit card payments over the mortgage can actually be a smart short-term strategy to get back on track, given that credit card penalties are pricier and faster to take effect, Ulzheimer says. “It’s taking forever for mortgage lenders to foreclose on and actually evict consumers, and I think they know that,” he says. And a TransUnion study earlier this year found that consumers are considered less risky if they are behind only on their home loan, versus delinquent on multiple smaller loans.

Of course, delay mortgage payments long enough, and you’ll risk foreclosure – and no one wants that. But there are a number of changes consumers could make to their credit card accounts that could cut interest costs and free up at least some of the cash needed to cover all their bills, says Beverly Harzog, credit card expert for Credit.com. “There’s a lot of competition right now among issuers,” she says. Savings could top $600 for switching to a card with a lower interest rate or (if you pay your balance in full) better rewards.

Those with a balance should hunt for a 0% balance transfer offer — the best offers allow up to 24 months and charge no more than a 3% fee, Harzog says. Consumers with only a small emergency fund, or who expect to make a few big purchases in the coming months, should also look for 0% offers on purchases for the first year, she says.

Cardholders can also benefit by paying down debt “the right way” — that is, starting with the highest-rate balance first. The difference could save you hundreds of dollars more over the course of a year.


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About Pay Dirt

  • Pay Dirt examines the millions of consumer decisions Americans make every day: What to buy, how much to pay, whether to rave or complain. Lead written by Quentin Fottrell, the blog examines these interactions, providing readers with news, insight and tips on shopping, spending, customer service, and companies that do right – and wrong – by their customers. Send items, questions and comments to quentin.fottrell@dowjones.com or tweet @SMPayDirt.