In Arizona and across the nation, residents continue to face difficult decisions when it comes to their personal finances. Whether defaulting on lines of credit or filing for bankruptcy, priorities have changed radically in the past few years. According to a research director at credit reporting agency TransUnion, mortgage defaults played an important factor in this shift.
In states where home prices have dropped the most, such as Arizona, more and more residents are concerned with keeping their lines of credit open rather than preserving their homes. With the threat of looming foreclosure and underwater mortgages, homes are now viewed as liabilities rather than assets.
In the past, Americans were more likely to default on their credit cards, then their auto loans and lastly their mortgages. However, now they are paying their credit card bills first and their mortgages last. This is demonstrated by the fact that the number of homeowners making their mortgage payments at least 60 days late rose in the later part of last year.
However, this may not be the trend--it may be because people increased their credit card usage in the holiday period. The inverse relationship between mortgage defaults and credit card delinquencies was seen in 2008 as well, when defaults on mortgages soared and credit card defaults declined.
Americans are becoming more conservative with their credit card usage. Not only are they paying their bills on time, they are also making payments to reduce their balances. According to the TransUnion director, consumers are trying to protect their access to credit. With unemployment on the rise and an uncertain economy, people want to ensure they have credit available if they ever need it.
Homeowners forced to choose between credit card default or mortgage default may want to think about the benefits of filing for personal bankruptcy. Because credit card and other debts can be discharged through a personal bankruptcy filing, it may mean fewer mortgage defaults and more homes saved.
Source: Fox Business, "Why Consumers are choosing to pay credit card bills before mortgage," Gall Buckner, March 26, 2012