The recession not only knocked a lot of people on their feet, but it also turned the typical hierarchy of debt consolidation upside down. Consumers faced with unemployment and a decrease in the value of their homes started paying down their credit card bills before their mortgages.

Pattern in Debt Consolidation

According to a study performed by credit information collector, TransUnion, this pattern of paying credit cards over mortgages lasted for five years but has subsequently reversed as of September 2013. Now that the market is ebbing back to normalcy consumers are again putting the mortgage before the credit card bill, which shows that it took a housing-market collages to shift consumers’ debt priorities.

The Study Details

The study looked at the spread between 30-day delinquency rates for both mortgages and credit cards over the last decade. In the first year of the study the mortgage delinquency rate was a whole percentage point lower than the credit card delinquency rate. Four years later the pattern flipped.

Reasons

According to Ezra Becker, TransUnion’s vice president of research and consulting, the flip was closely correlated with home price depreciation. “When peoples’ home values go underwater,” he said, “they are much less likely to pay that loans. He continued that the factors contributing to the shift in patterns included the high unemployment rate and the length of joblessness. “Consumers who were worried about cash flow needed to remain in good standing with their credit card companies, in order to maintain some liquidity.” An additional payment pattern was shown in the study – consumers pay their auto loans ahead of both mortgage and credit cards debts – a fact that has remained consistent over the last decade. Why? It’s better than taking public transit.

For information and guidance on debt consolidation and  bankruptcy, you need the experts at RHM LAW LLP