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Mortgage or Credit Card: Which Would You Pay First?

A recent TransUnion study found that the percentage of Americans behind on their mortgage but current on their credit cards increased nearly 55 percent between early 2008 and the third quarter of 2009.

And while the amount of consumers we're talking about is still relatively small (6.6%), I find the overall trend to be quite compelling. Clearly, consumers are beginning to think differently about the priority of their debts.

When I bought my first home in 2005 (close to the peak of the market in my area- grrhh!), it was ingrained in my mind that no matter what, I would always strive to pay my mortgage first. It seemed logical to me that the house would take priority over any other debt, and it still does, but a lot more people obviously feel different these days.

I've had several conversations with personal friends as they've tried to decide if they should keep paying their mortgage or simply walk away while staying current on other debts like their credit cards or auto loans. In each case, for those that did choose to walk away from their mortgage, their reasoning was the same. They couldn't see the sense in sinking more money into a home that had lost so much value it might never recover. They just wanted out, once and for all.

Their credit cards, on the other hand, could be a lifesaver if times got even worse during a longer period of unemployment. Credit cards could help finance their basic necessities, and the house couldn't do that.

In addition, they really didn't care much at all about their credit scores anymore, so the negative effects of a foreclosure didn't scare them. All they cared about was keeping what credit cards they did have active, while hoping that the foreclosure process would take a "really long time", essentially rewarding them with free rent.

I've often wondered what I would do if I was faced with the same situation. My gut feeling is I would still pay the mortgage first. That said, I'm a huge advocate of not only holding an emergency fund large enough to cover the mortgage and other living expenses for at least twelve months, but also never carrying a balance on credit cards. So, theoretically, I should never have to choose between the two, unless I found myself out of work for much longer than a year.

However, I'm interested to hear what the majority of you would do. If you had to choose one over the other, would you pay your mortgage or your credit card bill?

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Joshua Heckathorn's picture

Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

Visit 's Google Plus profile for more.


Tony Orlando's picture

I found your site on Google and read a few of your other entires. Nice Stuff. I'm looking forward to reading more from you.

Tony Orlando's picture

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Email me back if you're interested.

Tony Orlando's picture

I found your blog on google and read a few of your other posts. I just added you to my Google News Reader. Keep up the good work. Look forward to reading more from you in the future.

Credit Repair Report's picture

To continue paying a mortgage on a property that has lost value to the point where the market value is below the loan amount can be looked at in a couple of different ways. The question is this: Did you buy your home for an investment or did you buy it for a place to live? If you bought it for an investment then maybe you should walk away and hope to find a better investment. If you purchased the property as a place to dig in for the long term and raise your family then you should focus on making the mortgage payments and work out the credit card debt in one way or another even if it means one of the forms of bankruptcy. If you go through bankruptcy, you can still keep your home (provided that you can make the payments). You can always clean up your credit report.

Creditwrench's picture

Well, Joshua, I agree with you completely. The mortgage should come first and then all your utilities and other monthly expenses then credit cards. If your mortgage goes to pot your credit will also go to pot and the credit card companies will probably cancel you based on your failing to keep up with your mortgage payments. They will probably think that if you can't keep your mortgage up to date it won't be long before you start defaulting on your cards as well so they will move to cut off your credit for that reason if for no other. Keep that mortgage current if at all possible. When you end up with your home free and clear, all paid for it still won't be worth all the money you put into it so what difference does it make that the home depreciates in value? You still got a place to hang your hat regardless of it's worth.