How The “New Payment Hierarchy” Can Be A Path To Financial Destruction

March 16th, 2010 by Reed Allmand

Credit experts are explaining the new trend of American debtors paying credit cards off to the detriment of their home mortgages as the ‘new payment hierarchy.”  But what some so-called credit experts may describe as a new payment hierarchy is really just more damaging behavior that could lands millions of Americans into foreclosure and on the path of financial destruction.

… a small slice of those consumers are paying down credit cards to the detriment of their mortgage loan. The number of consumers delinquent on their mortgages but current on their credit cards rose to 6.6% in the third quarter of 2009 from 4.3% in the first quarter of 2008, according to a TransUnion study of 27 million anonymous consumer records pulled randomly from its database. Meanwhile, the portion of those who fell behind on credit-card payments but paid their mortgage dropped to 3.6% from 4.1%.

Many debtors have seemingly “logical” reasoning behind their choice to pay off credit cards instead of paying their mortgage:

1. They are suffering under an upside down mortgage which is at risk of foreclosure anyway.
2. They are at risk of losing their job and will eventually face foreclosure and need their credit as an “emergency” cash back up.
3. They are sinking financially in every other way and hope to at least keep their credit cards when their financial house of cards come tumbling down.

And while it may seem that all of the above reasons for paying credit card debt instead of mortgage debt is logical, the reality is something very different.  If you need to choose between paying your mortgage and paying your credit cards, then you probably need to file bankruptcy.  If you are not making enough money to pay your daily expenses and debts, then you may need to file bankruptcy.  Even if you are paying your credit cards it does not guarantee that your credit line won’t be reduced or cut off completely.  If you lose your home to foreclosure, the mortgage company may still come after you for the balance of the mortgage loan, even if they eventually sell the home.  In bankruptcy, unsecured debts can be discharged, so paying of a credit card that will be eventually discharged in bankruptcy doesn’t make much sense.  And finally, no matter what you do, you will need a place to live.  If you want to keep your home, you don’t have to choose between your credit cards and your mortgage payment with the help of bankruptcy.  Bankruptcy has the power to stop foreclosure and discharge credit card debt so that you can keep your home AND get a fresh financial start.

About Reed Allmand

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Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."

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