TransUnion is out with a new study that shows how Americans prioritize debt. Among other findings, consumers rank car loans and credit card payments ahead of their monthly mortgage.
According to the TransUnion’s quarterly look at consumer payment trend data, Americans pay off their biggest debts in an interesting pecking order, and it looks like this:
- Auto loan
- Credit card debt
- Home mortgage
TransUnion measures consumer payment priorities by delinquency dates. For example, in the third quarter of 2009, 60-day delinquency rates for auto loans were lowest of the big consumer debts (at 0.81%). Delinquency rates for credit cards clocked in at 1.1% and late payments for mortgages were far and away the biggest number, at 6.25% for 60-day late payments.
So why do consumers make sure they pay their auto loans and credit card payments first, sometimes at the expense of their mortgage payment? One reason is the dollar value — it’s much easier to make a $249 car payment, or a $115 credit card bill, than it is to pay off a $2,000 monthly mortgage payment.
Necessity is also a big factor. Says Ezra Becker, Director of Consulting and Strategy for TransUnion, "Consumers recognize that their credit cards are their primary purchasing vehicles in this economy." If you need food for the baby, or medicine to keep your health on an even keel, keeping your credit card in good shape isn’t a luxury, but a necessity.
It’s the same deal for a car loan. People need their wheels to get to work, otherwise they may not have a job at all. So making regular car payments becomes a huge priority.