Which to Pay: Credit Card or Mortgage?

For so many of us, paying the monthly bills can feel like a game of tug of war. Allocating money to one bill means there’s not enough to put toward another. So which is more important: your credit card or your mortgage? More people are answering that their credit card bill is higher on the priority list than their mortgage. A recent TransUnion study shows that the percentage of people current on their credit cards but delinquent on their mortgages is 6.6%. The percentage of people who are current on their mortgages but delinquent on their credit cards is 3.6%.

What have the credit card companies done to us? Have they made us so afraid of them that we’re willing to risk losing our homes simply to satisfy these billion dollar companies?

The fact that more people are choosing to pay their credit card over their mortgage shows that we’re starting to change our priorities when it comes to paying off debts. There was a time that paying the mortgage was the absolute most important thing of all, even before car payments. But, the credit and housing crises have played a great part in how consumers choose to pay their bills.

Missed payment penalties

The credit card has become sort of a squeaky wheel, doling out swift penalties for late payments. They may raise your interest rate (though you’ll have to be 60 days late to get a late penalty rate increase after February 22 when a new credit card law goes into effect), charge you a fee, lower your credit limit, or cancel your credit card all together. Not only that, they’ll report the late payment to the credit bureaus, which could damage your credit score. All this happens within a relatively short period of time, about 30 days. By the time your next credit card billing statement comes, your credit card issuer has already taken action for your late payment.

Compare that to your mortgage lender, who won’t take the worst of all actions (foreclosure) until you’re three to six months late on your mortgage payments (or longer, since so many homes are being foreclosed right now). But late mortgage payments still get reported to the credit bureaus and your credit score will probably get hurt.

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Who’s easier to pay?

It’s much harder to catch up on a missed mortgage payment than it is to catch up on your credit card payment. Miss your $100 credit card payment and you’ll be responsible for around $140 on your next credit card statement. Miss your $1,000 mortgage payment and you’ll have to come up with more than $2,000 to get caught up again.

Perhaps the reason people choose credit card payments over mortgage payments is because it’s easier to make a credit card payment. If you don’t have your entire mortgage payment, staying current with one lender is better than falling behind on both lenders. But choosing the easier payment isn’t the best in the long run.

What do you stand to lose?

“But, I don’t want to lose my credit card,” you might say to reason why you’d choose your credit card over your mortgage. That’s understandable, but do you want to lose your home? Credit card delinquencies are much easier to bounce back from than foreclosure. You can get a new credit card within months after defaulting on your credit card payment. Lose your home to foreclosure and you’ll end up waiting five to seven years before you can buy another house.

Credit card companies make themselves seem formidable because that’s what they have to do if they want to get the money you owe them. But there’s only so much they can do if you don’t pay them. Mortgage lenders speak softly, but carry a big stick. Ignore your mortgage lender and you could end up homeless. In the best of situations, you can juggle around some other expenses and come up with the money for your mortgage. If not, contact your lender to talk about other options.

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