For the first time since 2008, people have changed the order in which they pay bills — but some experts say Americans still don’t quite have their priorities straight. A study released Wednesday by TransUnion found that as of September, Americans prioritize paying their mortgages over their credit cards — the first time they have done this since September 2008. However, they still prioritize paying their car loan over both their mortgage and credit cards, a trend that’s been happening for at least a decade. “Auto loans have always been in first place,” says Ezra Becker, co-author of the study and vice president of research and consulting for TransUnion.
Indeed, among consumers with auto loans, mortgages and credit cards, the 30-day delinquency rate for auto loans was just 0.87%, while it was 1.71% for mortgages and 1.83% for credit cards, as of December 2013; Becker says he expects that this trend toward prioritizing mortgages over credit cards will continue. Meanwhile, just a year earlier, consumers were favoring their credit cards over their mortgages: The 30-day delinquency rate in September 2012 for mortgages was 2.42%, while it was just 1.81% for credit cards.
“One of the biggest impacts of the Great Recession to the credit system was its influence on consumer-payment patterns,” says Becker. “As unemployment rose and home prices cratered, increasingly more consumers were faced with financial constraints and had to make difficult choices — and many chose to value their credit-card relationships above their mortgages.”
What’s more, the payment patterns differ from city to city. As of December, in New York City and Los Angeles, consumers were giving equal weight to their credit-card payments and their mortgages, while in Chicago, consumers were still prioritizing their credit cards over their mortgages. Meanwhile, residents of Boston and Dallas began prioritizing their mortgages over their credit cards more than a year ago. The study authors think some of this might have to do with the severity of the housing crisis in the area, “with cities such as Los Angeles — which was greatly impacted by the mortgage crisis — experiencing much different consumer-payment patterns than cities such as Dallas, which had a more stable housing situation,” they write.
But no matter why Americans put their auto loans first, some financial planners think they’ve got it wrong. “You should pay your home, food and utilities before transportation,” says Kimberly Foss, the founder and president of Roseville, Calif.-based financial-planning firm Empyrion Wealth Management. The reason: “If you get kicked out of your house, you have no roof over your head, nowhere to live,” she explains.
Karen Ramsey, the president and founder of Seattle-based financial firm RamseyInvesting.com, also says that consumers who can’t pay all their bills should prioritize paying off their mortgage before their cars, as many people can take public transportation; the credit card is the lowest priority in this situation, she says.
While financial advisers agree that consumers should try to pay all their bills in full and on time — or risk damaging their credit scores — sometimes this isn’t possible. Foss says that if you feel like you might miss a payment on one of your bills, call the company and ask for a payment extension; if the person on the phone says no to your request, ask to speak to their supervisor. Ramsey says that credit-card companies are often the most willing to negotiate a revised payment plan for cash-strapped borrowers. “You don’t always get your way with these things, but it’s worth a shot,” says Foss.
Catey Hill covers personal finance and travel for MarketWatch in New York. Follow her on Twitter @CateyHill. This article originally appeared on MarketWatch.com and is reprinted by permission from Marketwatch.com, ©2014 Dow Jones & Co. Inc. All rights reserved.