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.' "
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.
...When Phyllis Coleman's mortgage payment jumped 26% last year, she began withdrawing cash from her credit cards to pay the mortgage. That worked for a few months, until Coleman, 50, of Fairfield, Calif., maxed out on the cards' credit limit. She defaulted on her mortgage and now faces foreclosure on her home.
Eventually, she also had to stop paying her credit cards, which she'd been relying on to cover daily expenses. "It became too much," Coleman says, "when gas started going up. I just got deeper and deeper" in debt.
Using credit cards for gas
Consumers with the least financial resources are pressured the most by a deteriorating economy and rising living costs. For this group, credit cards are simply a way to delay the financial pain.
In recent years, banks have ramped up card rewards, enticing more people to charge their purchases. As gas costs rise to levels many people can't afford — the national average for regular gas this week was $3.16 a gallon, up 32% from the same time last year — the number of consumers buying gas with credit cards instead of cash is accelerating, says Sonja Hubbard, CEO of E-Z Mart Stores, which has 307 locations in five states.
"People have less cash in their pocket, and if you have a $10 bill, that doesn't get you a lot of gas anymore," says Hubbard, who notes that most of her customers now charge gas to credit cards.
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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.
