Today, one of our writers came across an article that made me want to throw up just from reading the title: Forget the Mortgage, I’m Paying My Credit Card Bill. Oh man, where do I start? I honestly feel bad for the people that write this crap and for the people that they interview, because they really have no idea how much damage their advice is doing to the American people. I thought the title was a joke at first. I thought the article would make a case for paying your credit card first, then go back to reality about how paying your mortgage and keeping a roof over your head should be the first priority. But, that never happened!
The article starts off with statistics from TransUnion about the increase in defaulted mortgages and a decrease in defaulted credit card accounts.
A recent study developed by TransUnion found the percentage of Americans who were current on their credit cards but behind on their mortgage increased to 6.6 percent in the third quarter of 2009, up from 4.3 percent in the first quarter of 2008. Meanwhile, the share of consumers making mortgage payments on time but behind on their credit cards moved in the opposite direction, sliding from 4.1 percent to 3.6 percent over the same time period.
Did the “journalist” ever stop to think that this statistic could be interpreted a different way? Could it be that the amount of people working to get out of debt has increased more than the amount of people defaulting on their mortgages? This recession and unemployment rate has made people wake up. They don’t want credit card debt anymore, but that doesn’t mean the same people that are paying off credit cards are also defaulting on their mortgages because of it. They’re selling stuff, taking second jobs, and getting the HELL out of debt, because being in so much debt was what got them in a bad situation in the first place.
Then, he goes on to blame the housing market for the reason that people are defaulting on their mortgages and choosing to pay their credit card bills first.
When home prices turned south–falling roughly 30 percent from their peak in the second quarter of 2006–a great deal of borrowers watched the value of their homes drop below what they owed on their mortgages. Today, roughly one in four homeowners finds himself in this position, which is also known as being “underwater.” Without equity in their homes, such borrowers are more likely to default.
There are some people doing this, but most of them are investors who aren’t treating the property like it’s their HOME. Why do you care about the appraised value of your home when you have no intentions of moving? Why does it matter? The market value of a home is ALL relative. The house is worth as much as someone is willing to pay for it. Yes, if you bought during the speculative boom in 2004 or 2005, you probably bought at an inflated price, but that’s no reason to walk away and trash your credit for the next 7 years and not be bankable AT ALL for the next 3 years.
Then another smart soul chimes in:
“They don’t see any value in putting money into an asset that has lost that much value and will probably never regain that value to offset the mortgages,” says Celia Chen, of Moody’s Economy.com.
Never regain its value? Those are some pretty strong words Celia. How is she so sure that the house will NEVER regain the value they bought it for?
Now on to Keith Gumbinger, the VP of HSH.com. His organization MUST really love credit card companies, even though his website is all about mortgages, because this guy is out of his mind.
“It is hard to operate in our society without a credit card today,” Gumbinger says.
Yeah, it’s so hard to operate without a credit card. I don’t know how I would ever survive without one. Oh wait, I do survive without them every single day and so do millions of other Americans. This is just garbage that bankers try to brainwash us with. They want us to be dependent on consumer debt for the rest of our lives. They want us paying a payment every single day of our adult lives. Is that what you want? Do you want to be a slave to a lender for the rest of your life, or do you want to have the freedom of knowing that you don’t owe anyone, anything.
Here’s another great one from Gumbinger:
“For a borrower who has got a significant [cash] shortfall, it is a completely rational decision [to pay off a credit card bill while defaulting on a mortgage],” Gumbinger says.
Let me be clear (I sound like Obama). Do not ever pay your credit card bill before your mortgage or rent. You need to take care of your basic necessities first in this order: food, utilities, shelter, clothing/basic transportation. Everything else gets pushed aside if you cannot pay it. Credit card issuers loan you unsecured money (meaning there’s no physical object attached to the debt), and they hope that you pay them back in good faith. Because this debt is unsecured, they charge you a crazy interest rate to make up for the risk they are taking by loaning you the money without any collateral. Paying off your credit card first and jeopardizing a roof over your head for you and your family is ridiculous. Yes, you will have 6 months to a year before a mortgage lender actually forecloses on you, but it will NOT be a fun, easy process. Your credit will be ruined for a very long time, and they will SUE THE HELL OUT OF YOU for the difference between what you owe and how much they resold the house for. The article never talks about that part of walking away from a house. The credit card company can sue you too, but it often takes them longer to file suit then it does a mortgage lender. Would you rather be sued for $5k or $50k?
I really wish stuff like this was never published, because all it does is make people more dependent on credit cards and make them think that walking away from their mortgage is okay and everything will be fine. Pay the IRS first, the mortgage second, and everything else after that.
(photo credit: wynlok)