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Consumers pay car loans, credit cards ahead of mortgages

March 30, 2012

| Money Rates Columnist

The latest update to the TransUnion Payment Hierarchy Study sheds new light on how consumers prioritize their payments when money is running short. The credit management bureau found that both mortgage and credit card payments take a backseat to those for auto loans, and that of the three, mortgage payments are still at the bottom of the priority list. The study's authors speculate declining housing prices and persistent unemployment rates explain this pattern.

"With unemployment remaining high and real estate values remaining stagnant or further depreciating, consumers continued to pay their credit cards ahead of their mortgages," said Ezra Becker, vice president of research and consulting in TransUnion's financial services business unit, in a press statement. "However, the importance of their auto loans appears to have trumped even the value they place on their credit cards."

TransUnion analysis of consumer payment habits

To complete its analysis, TransUnion used a sample of 4 million consumers for each quarter in 2011. These individuals had at least one mortgage, one auto loan and one credit card. These accounts were all open at the time of the analysis.

Of consumers that were 30 or more days delinquent on at least one account, TransUnion noted the following trends:

  • 9.5 percent were delinquent on their auto loan while current on their credit card and mortgage
  • 17.3 percent were delinquent on their credit card while current on their auto loan and mortgage
  • 39.1 percent were delinquent on their mortgage while current on their auto loan and credit card

This hierarchy was consistent across states although the difference was magnified in some areas. For example, in Florida, which has experienced significant drops in housing prices, half of those with delinquent accounts were behind on their mortgage but current on their credit cards and auto loans.

Auto loans a high priority for many

According to the analysis, there may be several reasons why auto loans are a priority for consumers. Cars are a necessary form of transportation for many workers or job seekers. In addition, some individuals may have equity in their vehicle they wish to preserve. Finally, the possibility of repossession may motivate some to pay their auto loans before unsecured debt such as credit cards.

Previous payment hierarchy studies completed by TransUnion found mortgages became less of a priority four years ago. It was then, in 2008, that the percentage of those delinquent on their mortgage but current on their credit cards first surpassed those who had current mortgages but delinquent credit cards.

However, 2011 represents the first year in which auto loans moved ahead of both credit cards and mortgages as a payment priority. According to Matt Komos, a co-author of the study, current payment patterns will likely remain the status quo until the housing market recovers and unemployment rate significantly improves.

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