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Credit Card Payment More Important Than House Payment?

In an unprecedented shift, for some consumers having a credit card in good standing appears to have taken priority over having a roof over one’s head, experts said.

While overall consumer debt rose unexpectedly in January, consumers continued to pay off their credit cards that month — a record 16th straight month of lower credit-card debt — with such debt dropping about $1.7 billion to $864.4 billion, according to the Federal Reserve on Friday.

But a small slice of those consumers are paying down credit cards to the detriment of their mortgage loan. The number of consumers delinquent on their mortgages but current on their credit cards rose to 6.6% in the third quarter of 2009 from 4.3% in the first quarter of 2008, according to a TransUnion study of 27 million anonymous consumer records pulled randomly from its database. Meanwhile, the portion of those who fell behind on credit-card payments but paid their mortgage dropped to 3.6% from 4.1%.

The trend is more common among consumers with the lowest credit scores. The percentage of consumers with low scores who paid credit cards rather than home loans shot up to 29% in the third quarter of 2009 from 19.1% in the fourth quarter of 2007, according to TransUnion. And in that low-credit-score group, consumers falling behind on credit cards but keeping pace with mortgage payments declined to 14.5% in 2009 from 18.1% in the first quarter of 2008.

Credit Card Delinquencies Hit Record High

Soaring U.S. unemployment and a shrinking economy drove delinquencies on credit card debt to an all-time high in the first quarter as a record number of cash-strapped consumers fell behind on their bills.

“The biggest driver is job losses,” ABA Chief Economist James Chessen said in an interview. “When people lose their jobs or work fewer hours, it makes it that much harder to meet their obligations. Unfortunately, we’re going to see higher job losses in the next year, and I expect elevated delinquencies.”

Borrowers are struggling as the nation’s jobless rate sits at a 26-year high of 9.5 percent, with 6.5 million jobs having disappeared since the recession began in December 2007. The Obama administration expects the unemployment rate to hit double digits before declining.

Credit Cards Are the Next Economic Crisis for Banks

First came the mortgage crisis. Now comes the credit card crisis.

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.

The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.

Lenders wrote off an estimated $21 billion in bad credit card loans in the first half of 2008 as more borrowers defaulted on their payments. With companies laying off tens of thousands of workers, the industry stands to lose at least another $55 billion over the next year and a half, analysts say. Currently, the total losses amount to 5.5 percent of credit card debt outstanding, and could surpass the 7.9 percent level reached after the technology bubble burst in 2001.

“If unemployment continues to increase, credit card net charge-offs could exceed historical norms,” Gary L. Crittenden, Citigroup’s chief financial officer, said.

Faced with sobering conditions, companies that issue MasterCard, Visa and other cards are rushing to stanch the bleeding, even as options once easily tapped by borrowers to pay off credit card obligations, like home equity lines or the ability to transfer balances to a new card, dry up.