Americans paying of credit cards before mortgages!!! Surreal.

[debbierlus]

http://www.usatoday.com/money/perfi/credit/2008-02-28-credit-cards_N.htm?loc=interstitialskip

More Americans using credit cards to stay afloat
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Digg del.icio.us Newsvine Reddit FacebookWhat's this?By Kathy Chu, USA TODAY
Seven years in the credit-counseling business didn't prepare Ann Estes for the alarming trend she began noticing last fall: As her clients' mortgage bills became unaffordable, a growing number of them began paying their credit card bills before — and sometimes instead of — their mortgages.
"We've never seen anything like this," says Estes, who counsels clients by phone from her office in Richmond, Va. "Their homes are at risk, and they know it. But people say, 'I don't want to let my credit cards go because that's my cash flow.' "


CHART: Changes in spending habits

Across the nation, credit counselors are reporting the same trend. Credit bureau analyses of consumer payment data show that financially squeezed borrowers have begun paying their credit card and car bills before their mortgages. That's a striking reversal from the norm, one that reflects rising desperation. It suggests that some people essentially have given up trying to stay current with their mortgages and instead are focused on using credit cards to squeak by.

If the trend persists, many economists say, it could accelerate mortgage losses and further drag down the economy.

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Rising living costs, along with cheap and plentiful credit, have led consumers to rely more on plastic to pay for necessities they can't live without — and luxuries they don't want to do without. But as the economy weakens, consumers are starting to spend less on discretionary items, such as furniture and electronics, and more on such necessities as groceries and gas, according to government data. Such items increasingly are showing up on credit card bills.

"Everything's going up — dairy, gas, home taxes," says Christie Carlson, 34, a single mother of five children, ages 5 to 14, in Tomah, Wis., who enrolled in a debt-management program after racking up $20,000 in card debt. "I'm trying to pay more for everything in cash, but it's just impossible. It's not feasible right now to stop spending on the credit card."

During the past year, credit card debt has ballooned most rapidly in parts of the nation where the economy is particularly weak, including California, Florida, Arizona and Nevada, says Mark Zandi, chief economist for Moody's Economy.com.

"That suggests that people are turning to their cards in times of financial need," Zandi says. "They're losing jobs and overtime hours and other income and trying to supplement their lower incomes with more spending on credit cards."

Magnifying the problem has been the shrinking availability of a major alternative to credit cards: home equity loans. As home values have sunk, homeowners have found it tougher to qualify for such loans. So they've turned elsewhere, especially to credit cards, to cover daily expenses.

[Maggie_May]

1. I have to confess

I didn't read the whole thing but why would you pay your credit cards before your house payment. I have been in hard times before and even now its tough with Bush's great economy but always the house comes first. Just wanted to post now will read the whole thing LOL.

[dmallind]

3. Higher rates on cards perhaps?

It probably costs more to be late on them than on the mtg. Not tax deductible for interest either so if I had long term c/card debt and could either pay that off or reduce my mtg I'd do the former methinks.

[Mountainman]

4. They have given up on the idea of owning a home. They owe more than it is worth.

The house is losing value (yeah! say some DUers, they want to be able to buy that house after the owners lose it to the mortage company)

[Maggie_May]

6. is that what you are going to do??

I was lucky we bought a home that we could afford my husband and I both work and if it happens that one of lose our job will can still afford our home. We watch people in the neighbor refinance there homes and boy I wanted to at the time wanted to finish the basement do some other home improvements go shopping (love to shop.) I just have a husband thats good with money, for me I suck and probably would have been one of those people to refinance up the ass.

[Mountainman]

7. No, I'm selling my house. I've already reduced the price $100K.

I'm trying to buy a cheaper more affordable house. No matter what I buy, it will continue to lose value to for a couple of years.

I just hate it when DUers who don't own a home cheer when prices fall. It is like a bunch of ghouls if you ask me. Like buzzards waiting for the body to die so the can pick at the carcass.

[Maggie_May]

8. I agree

When home prices go down and people lose there homes and jobs it hurts the entire community. I use to live in Michigan and I saw what plant closings did to the homes in the Flint area when people lost there jobs. Now they have closed plants in the Wixom area of Michigan and same thing is going to happen its so sad. I am sorry about reducing your house it doesn't help when there are so many on the market right now. What area are trying to sell in?

[Mountainman]

9. My house is in the mountains east of Bakerfield, CA. I have 20 acres of horse property. A house

and out buildings.

[Johonny]

12. Yes

just like when DUers who owned a home were cheering when prices were rising do to an inflated market. It was like a bunch of ghouls who don't understand economic consequences of their actions if you ask me. Shame on those DUers that made smart economic choices. They should have been stupid and bought up a house they couldn't afford and wasn't worth nearly the loan they were going to take out on it. Blah blah, blah...

[TheMadMonk]

14. If someone buys into an inflated market with discounted credit...

...they will find little sympathy from me when the inevitable happens. It's about assuming responsibility for their own actions, and not blaming another party who might have encouraged them to act in a manner that is not in their best interests.

Yes, there are major problems with a system which allows lenders to hand out the loans that they have handed out. Or more correctly the problem lies with the completely unregulated agents who brokered the loans. They don't care whether or not the borrower can ultimately afford the loan, because what they get paid for is the signature at the bottom of the contract and far too many will to whatever it takes to get that signature, fair means or foul.

As with any deal it is the responsibility of the contractee to be able to meet the terms of the contract. That is what his signature means: That he understands the terms of the contract, that he agrees to and is able to abide by those terms.

The contractors obligation being solely to offer a contract that complies with the law. They are not obligated to ensure that the contractee

The purpose of sweetheart/honeymoon periods is not to allow a borrower to borrow beyond his means, so that he can make a profit selling before the expiry of that period. The idea behind such deals it for the borrower to pay down a significant chunk of the principle prior to the expiry of that period. The idea is to reduce the overall cost of servicing the loan to the borrower and to reduce the level of exposure of the lender at the same time. A win-win situation.

The borrower might well be able to make a tidy profit by selling up early, but borrowing on the assumption/with the hope that such a profit will be realised is gambling with someone else's money. Never a good idea.


A huge part of the current mess comes down to greedy people on both sides of the contract making the completely ridiculous assumption that property prices would continue to rise indefinitely.

[JNelson6563]

17. Some common sense goes a long way

The last time my ex and I bought a house we were told we could borrow up to such-and-such an amount. I was appalled. There was no way we could afford to borrow what they said we could and not struggle mightily. We knew they were full of it and stuck to the price range we were originally looking at. I wonder how many fell for that, glad we didn't.

Julie

[annabanana]

20. I guess I have just missed most of those posts where DUers cheer

as people are disposessed... Perhaps I just don't spend enough time here...

[KatyaR]

16. Probably because people need to eat.

If that's their cash flow, they're using those cards to pay for food, auto gas, etc.

Which is worse--being homeless or starving to death? I'm afraid more people than ever are soon going to have to make that choice.

[killbotfactory]

2. Easy credit has replaced real wages.

We are being totally scammed by the powers that be.

None of it is helped by having an economy that flourishes the more people buy frivolous disposable crap, or the billion dollars of advertising propaganda we are subjected to every year trying to manipulate us into buy frivolous crap.

[Caria]

5. It may be very sensible actually

depending on what kind of mortgage you have and how much you owe. Today's NYT includes an article about people who have little or no equity and owe more than their houses are worth.

Facing Default, Some Walk Out on New Homes
http://www.nytimes.com/pages/national/index.html?adxnnl=1&adxnnlx=1204316513-pk+A692F1bxmCasl8uc9oQ

[debbierlus]

10. Sensible is an odd word. It is desperate.

And, a reflection of how bad the economy actually is...

[El Pinko]

19. It's hard for me to imagine making that choice...

After several years of struggling just to pay the minimums on a bunch of cards (then charging them back to the limit to get groceries and gas), I finally made the choice to default 2 years ago. I'm a renter and probably will never own a house now because my credit is shot, but at least I can feed my kids decent food and buy them shoes now that I'm not a slave to the cards anymore.

It's an adjustment to not use the cards - now if I have no money on the 26th, I will have to wait until payday on the 30th to buy groceries and figure out to stretch what's in the house until then. It's tough, but it's still less stressful than the credit merry-go-round was.

[ProgressiveFool]

11. Lines of credit for healthcare?

That just shocks the conscience, it really does. Fucking vultures.

Another shocking thing is how dispassionate the view is towards all of these people who, really through no fault of their own, got into this mess. We're just all ants in a glass-faced antfarm struggling mightily for our owners' enjoyment.

[Johonny]

13. Not sure how it's not fault of their own

There's a difference between people that took out equity on house to "upgrade it" or bought a house in a vastly inflated market qualifying for a loan any reasonable person could have calculated they couldn't afford.

The no fault people are the long term home owners that have run into property tax problems due to the inflated housing values or lost their job long term due to the Bush economy. These are the people you feel bad for. They made good economic decisions but are losing their house based on other peoples bad economic choices.

[renate]

15. I think people weren't aware that the meaning of *applying* for a bank loan had changed

I took a money management course in college, lo these many years ago, and was told that a bank wouldn't give me a loan unless I qualified for it. I don't remember any headlines or any public service announcement saying that banks had basically given up on that process... so I assume that many of the people who "qualified" for adjustable rate loans took it in good faith that, if the bank said they were a good credit risk, they weren't being irresponsible in buying a big fat house. After all, banks don't hand out big chunks of change to just anybody, right?

Most people don't speak money the way that most people don't speak French. If you hire a French translator, or if you hire a bank loan officer, you assume they know what they're doing, especially if they have a track record of high standards.

Sure, those of us who took a money management course could probably figure out that the banks were making a mistake. But it seems kind of harsh to punish all the buyers who were only doing what generations of Americans had been told--to own your own home--for trusting that the professionals at the bank knew what they were doing.

[YankmeCrankme]

18. Thanks for a reasoned statement that doesn't blame the victims

for the actions of predatory bankers/lender/brokers. Sure some people used it as an opportunity to speculate and make quick profits on rising housing values, but most were buying first homes or upgrading existing one trying to live the mythological "American Dream".

[annabanana]

21. Thank you! In this highly specialized world, ALL of us

rely on those whose expertise exceeds ours when making decisions that are outside of our scope of study.