I read this article the other day about the order in which people pay their bills, or rather, the order in which they do not pay their bills. Historically, when money gets tight the credit cards are the first bill not to be paid. Then the car payment and lastly the mortgage. In the past, when you couldn’t make your mortgage payment it meant you were in big trouble. Foreclosure meant that you were totally broke. Losing your house was rock bottom financially.
However, research shows that it’s not like that anymore. TransUnion reported that 40% of people who fell behind on their bills kept their credit card and car loans up to date and let the mortgage fall behind. They go on to say that 6% of people are behind on their mortgages while only .78% of people are behind on their credit cards and .46% are behind on their car loan. It’s interesting to note that .46% is a historic low in car note delinquencies.
Why the shift? People falling behind on their mortgage makes a sense. You would expect that one to be at an all time high since that includes those who are choosing to walk away from their home for strategic reasons. There are people out there who can afford to pay their mortgage and choose not to since they are so far upside down. But that doesn’t explain the historic lows on missed car payments or credit cards.
The thinking here is that people need their car to get to work, or look for work, and they need their credit cards to pay for necessities like food and clothing. Plus, in my thinking if you skip your mortgage payment it leaves a lot more cash on hand for your car and credit card payments. Skipping a car payment might only give you an extra $300 but skipping a mortgage payment could leave you $1,000 or more in your checking account. That extra could allow someone to stay current on their other bills.
The good news of the article says that the number of late payments as a whole is dropping. More people are current on their bills today than in the recent past. That’s good news! It means people are struggling as much as they have been.
How about you? Have you been faced with which bill to pay and which to skip? Which did you choose?