If you only had enough money to pay your credit card bills or your mortgage, but not both, which would you pay? Having grown up in a home that we almost lost to foreclosure and bankruptcy, the answer for me would be easy–you pay the mortgage first. But more and more people are coming to the opposite conclusion. According to a report by Trans Union, 6.6% of consumers are delinquent on the mortgages, but current on the credit card bills.
So what’s going on here? According to some, many folks have given up on trying to keep their homes. Recognizing that the value of real estate has fallen so much, the urge to save the home at any expense is no longer there. In contrast, many people rely on their credit cards to handle monthly expenses. If they lost their cards, they’d have a hard time feeding their families.
So if you are faced with this dilemma, which should you pay first? While the answer to that question will certainly differ from one family to the next, here are some factors to consider.
First, is keeping your home realistic? If a foreclosure is inevitable, putting more money toward the mortgage may not be the best idea. Before making this decision, however, it’s worth contacting your mortgage company. While there is no guarantee that accommodations will be made, more and more mortgages are being modified to keep homeowners in their home. And even if you do end up losing your home, the transition can be better if you work with your bank.
For example, CitiMortgage is piloting a program that would allow you to stay in your home for 6 months to ease the transition. They’ll provide counselors to help in the move and even up to $1,000 in cash. And the U.S. Treasury Department will soon be launching a similar program, called the Affordable Foreclosure Alternatives Program (HAFA).
Second, talk to your credit card companies. In some instances, they are willing to lower the minimum monthly payment and or interest rates. While there is no guarantee of help, the point is that sticking your head in the sand and wishing the financial problems away won’t help.
So what’s your take–would you pay your mortgage or credit cards first?