A new report from the Filene Research Institute has brought academic research to what has been mostly anecdotal reports: Consumers are opting to pay their credit cards bills instead of their mortgages first.
The new research brief, by Professor Ethan Cohen-Cole of the Robert H. Smith School of Business at the University of Maryland, demonstrates that the "disappearing stigma is coupled with a rational consideration on the part of consumers to maintain liquidity in times of financial hardship," Filene said.
Essentially, faced with diminishing funds, Filene's researcher said consumers are opting to maintain access to funds through keeping credit card bills current instead of keeping their mortgage accounts current.
The researcher reports said that a large percentage of individuals choose delinquency on mortgages or credit cards, but not both. And a large fraction of that group chooses delinquency on mortgages while continuing payment on credit cards.
The study also found that areas with large declines in home prices show stronger patterns of borrowers paying their cards first in an effort to protect liquidity and that those with the least available credit, including the young, those with low credit scores, those with low income, and minority populations, are more likely to keep credit card accounts current.