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Homeowners Choose Credit Cards Over House Payments

[Oct 5, 2007.]


It used to be that homeowners would make sure they paid their mortgages before they paid any other bills. The thought was that the last thing on earth a homeowner wanted to lose was his or her house.

However, the decline in the housing market has created a new phenomenon: consumers who are facing foreclosure, but holding on to their credit cards.

Consumer counselors say that some homeowners are finding themselves up to date on their credit card bills but behind on their mortgage payments. As a result, financial institutions are taking back a record number of houses, while credit card delinquencies stay steady.

A number of consumers have a special incentive to remain current on their credit card accounts: without the ability to take out home equity loans, credit cards are providing them with the means to purchase big-ticket items that would be otherwise out of reach.

Consumers also say they would rather fall behind on one item in the household budget rather than several items—even if it means running the risk of losing their house in the process.

Still, it appears that there are a growing number of consumers who are falling behind on credit card bills. Credit card issuers wrote off 4.58% of payments between January and May. That's an increase of close to 30% over last year.

In response, some credit card companies are hiking interest rates and transfer fees for consumers. Yet, so far, the housing crunch has not had a dramatic impact on credit card companies.

The housing crisis is expected to continue well into 2008, meaning there is unlikely to be any turnaround anytime soon. Up to the present time, troubles within the subprime lending sector have not had a significant ripple effect throughout the economy. Still, there continues to be the possibility that the collapse of the housing market will lead to recession in the months ahead.

Julie Ann Amos
October 5th 2007

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