Facing limited funds and the hopeless situation of robbing Peter to pay Paul, many Floridians are electing to pay their monthly credit card bills over their mortgages. Credit bureau TransUnion reported this week that, in a disturbing trend, a growing number of American homeowners are choosing to pay their plastic rather than the bill for the roof over their own heads. Turns out that my fellow Floridians are leading the nation in this charge. The question is what’s more important – keeping up with the mortgage, or paying down debt? The answer might seem completely intuitive, but the reality is quite different.
TransUnion is also stumped by the shift in priorities. Historically, a company consultant pointed out, people have tended to pay their secured obligations over those that are unsecured. After all, your home can be foreclosed upon and then you have no place to live. But following the trend of a “payment hierarchy shift,” the old wisdom no longer applies. Compared with the autumn of 2007, over five percent more Sunshine State homeowners are now caught up on their plastic but behind on their mortgages, for a total of twelve point four percent of all home-owning consumers. That constitutes a one hundred forty-three percent increase. Compare that with the national average of six point six percent, which increased from four percent (a sixty-eight percent statistical increase) since Fall 2007. No other state in the country has as big a concentration of homeowners paying their plastic ahead of their mortgages.
Even though this trend is new, it is not without explanation. The TransUnion study offers two possible scenarios. First of all, many homeowners who have lost tremendous amounts of equity in their homes as a result of the housing market’s failure are much more likely to walk away from their obligation or simply risk foreclosure, since they don’t see the point in paying an upside-down mortgage. On the other hand, they may rely heavily on their credit cards to meet everyday needs like groceries, gas, and paying utility bills and can’t afford to risk falling out of favor with their credit card companies. In Florida, this likelihood is especially probable – unemployment here is hovering around twelve percent, and the housing market has been especially battered by the national economy. Foreclosure also carries much less of a stigma than it used to, TransUnion points out. So many people are being forced into foreclosure, in fact, that the system often cannot even try to keep up. In Florida, there is usually at least eighteen months between when a notice of foreclosure is filed and when homeowners actually lose their homes. Meanwhile, credit card companies have been clamping down on rules and tightening the availability of credit, giving cardholders more incentive to pay. Consumers know that it is getting ever harder to obtain credit, so they want to stay current and in good standing with the cards that they do have.
When the trend became noticeable for the first time in July 2008, TransUnion believed that it would be temporary, and that it had been triggered by the beginning of the decline in the housing market. They were wrong. The trend not only continued to grow, but it grew exponentially. The perceivable growth led the credit bureau to launch its study of homeowners and their payment trends. This is all information that TransUnion has readily on hand, drawing from its estimated twenty-seven million consumer credit records to determine thirty-day delinquency data on those households holding at least one credit card and one mortgage.
Credit card delinquencies are still going up, despite consumers’ obvious best efforts to get them under control. This trend is scary – what will happen to these consumers when their lifeline to financial help gets cut off? And will they lose their homes in the midst of the uphill struggle to stay afloat with their credit card obligations?
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