Why You Should Never Put Credit Cards Before the Mortgage Payment
The last couple years have proven to be tough times to be a homeowner. Home values around the country have seen a decline, and many homeowners are now feeling the squeeze from signing up for adjustable rate mortgages. Many homeowners are having a hard time coming up with mortgage payments, while meeting minimum payments for cars and credit cards. Something has to give, and all-too-often it is the house that falls behind.
The Squeaky Wheel Gets the Oil
There are too many stories out there about homeowners who kept their credit cards current as they fell behind on their homes, ultimately leading to foreclosure. Credit card collectors are notorious for their obnoxious, high-pressure techniques, and unfortunately they are also often the most successful. I used to work in a call center, and I’ve seen these collection practices up close and personal. Believe me, it wasn’t any more fun for me being on the other end of the line, but some people seem to enjoy abusing others over the telephone. I was raised on the idea that you catch more flies with honey than with vinegar, but in the collections world this just isn’t true. The best way to collect money on a credit card is to scare the cardholder into thinking they will be sued, or to pester them to the point that they finally pay just to get you out of their lives.
Shelter and Transportation Before Visa and Mastercard
The problem with paying credit card companies when you are in a financial bind is that with only so much money to spread around, something else is going to suffer. I’m not advocating you neglect to pay a just debt, however I am advocating that you sit down with the pile of money you have to work with and put life necessities at the top.
I’m a fan of the Dave Ramsey radio show. I don’t agree with 100% of what he advises, but he is right on when it comes to this subject. When he fields calls from people who are being bullied by credit card collectors he advises them to list out their monthly expenses beginning with life-sustaining expenditures first:
- Housing
- Food
- Lights
- Transportation
Notice credit cards weren’t part of that lineup. If you have money left over after paying those four basic categories, then by all means make your credit card minimum payments. If you don’t have anything left over, do not stress out about what Bank of America might do to your FICO score, or worry that Discover Card is going to garnish your wages. If you receive a call from a nasty credit card collector, explain in a calm manner that you have budgted your bills for the month and unfortunately you are not able to make a payment this time. When they start to scream and yell and call you names, simply put the phone down on the table and go about your business. If you get emotional and yell back at them, they win. Getting you upset is their objective, so don’t let them win!
When your financial situation improves make plans to catch up on outstanding bills, again putting credit cards last. House and car payments come first, and with anything left over you can begin to catch up on outstanding credit card debt. The bottom line is to play by your rules, not the credit card collector’s. After all, you are the one that has to suffer the consequences of missing a house payment, or getting your car repossessed.
Thanks so much for writing about this. My husband and I have spent the entire summer without a paycheck, scraping just to get the money together to pay for the house. After getting the calls from the collection agencies for months, we just feel like people trapped in cages - can’t answer the phone, the doorbell sends me into an anxiety attack, they call us at work and tell their “sad tale” to whomever picks up the phone.
But what we finally realized is that they can’t squeeze blood from a stone. We’re working on our options (our situation’s a little unique, you can read about it on my blog if it suits you), learning to take deep breaths and moving along. For someone who’s always had a great FICO score, these can start to feel like dark days. And we really appreciate it when we read about someone else who is surviving it, or understands, or even just sympathizes.
Frugal Dad: If you get emotional and yell back at them, they win.
SO true!! About 7 years ago we were in that situation. I was still pretty new to the US so I didn’t really know the laws at all.
Great post!
I think an important part of this post is “why?” should you pay off the mortgage first and leave the credit cards?
I believe the big reason why is because in bankruptcy they cannot take your residence.
So, if you pay credit card bills and don’t pay mortgage, you would get foreclosed on and you would lose your home. If you pay your mortgage and leave the credit card bills, the worst case (and only in worst situations) would be bankruptcy but you still have a home.
Good post! Losing your home is probably the worse thing that can happen financially and causes much more of a life disruption than credit cards. If you don’t pay your credit cards, you won’t end up on the street or scrambling to look for shelter.
Its funny…this should be a no-brainer, but it is amazing how many people don’t do this when they are under pressure from the creditors!
Probably the biggest piece of advice beyond this would be to communicate with your creditors/lenders. They don’t go away! There are options…and your mortgage lender may even be willing to help out. When I worked for a mortgage lender we often allowed people to skip a payment and paid it directly to creditors. It was a way of protecting the mortgage investment!
Bottom line is that credit cards are unsecured credit whereas your mortgages is secured by your house.
I would totally agree that paying the mortgage and car note is more important than the credit cards. However, if you have significant amounts of debt on credit cards, then you could face being sued by the credit company and having your wages garnished or your bank account trimmed.
(http://www.bankrate.com/brm/news/bankruptcy/20050906a1.asp)
The only way to prevent this would be to declare bankruptcy. With the laws that were passed a few years ago, this has become a much more difficult process — and rightly so. Bankruptcy should be an absolute last resort. Far too many people for too long have used it as a “reset button” on their bad decisions and massive debt. It leaves those of us who are good debtors to pay higher interest rates and face increased difficulty in obtaining credit (mainly for cars and houses). Unfortunately, far too many people in the US have gotten used to passing-the-buck and dispersing blame so anything that can prevent people from suffering through their mistakes is OK by me.
“Unfortunately, far too many people in the US have gotten used to passing-the-buck and dispersing blame so anything that can prevent people from suffering through their mistakes is OK by me.”
Whoops, I meant to say that anything that can prevent people from NOT suffering through their mistakes is OK by me. They should reap what they sow and not be able to fall back on bailouts and people “feeling sorry for them”.
I tend to subscribe to the Larry Winget method of facing one’s debt and problems.
Frugal Dad, what a timely post. My husband was layed off about a year and a half ago. All savings has now dried up and this is the situation we are in, lining up all our bills and paying the most important first and going down the list until we run out of money and telling the rest, “Sorry but you will have to wait”. It’s a horrible feeling, but it helps to know I am not the only one in this position. I think you are right on the money with your advice. And to others out there in this situation, TALK to your lenders. They are usually willing to help out if you let them know your situation and that you want to make good on your debt.
Unfortunately with 12 years of business friendly government in power all the consumer laws have been re-written in favour of the companies. While I expect the proverbial pendulum to swing back I don’t think it will help those in trouble in the near future.
I love all things American but I’m very glad I don’t live there.
My husband is a commission only sales person. His pay is about 1/2 what it was a year ago. So we sat down the other night and decided we are going to take care of our 4 walls and our 4 wheels first. We were able to pay something towards the CC’s but not even the minimums.
Is that what we should do? Pay a little on each? I’m not really sure.
Hope your situation improves soon. It sounds like you and your husband are attacking this problem together, and that is the best way to go. Stay strong, and stay a team, no matter what!
I never thought about it that way. Good post! I don’t carry credit card debt but I do have a car loan so perhaps I need to change my priorities of paydowns….
I’ve been laid off before and understand what a difficult and scary time it is. That is part of the reason I’ve tried to avoid debt whenever possible. One less thing to worry about during the bad times.
Best of luck to Dana, J, & Emily. I have a feeling you will come out stronger. The hard times won’t last forever.
So how do I decided which ones to pay & which ones not to pay? Pay the smallest like my debt snowball or pay the one that is yelling the loudest?
The good news is that we have enough to pay rent, utilities and such just not the CC’s. I’m actually ok with it. We will get to them when we can.
Thanks for your help!
Fantastic post! It’s easy to pay cell phone and cable and not realize that the mortgage payment is coming due quickly. I would also add the importance of paying off the HELOC too. Here in California, many have used the HELOC like a credit card and don’t realize that the banks can limit access to these account.
I really enjoyed reading this post and am including in this weeks “Posts that motivate and inspire”.
I agree that talking with and being honest with the credit card companies is a great first step. They might let a few things slide for a short period of time but if they do, you absolutely must take advantage of it, and quickly. Even if it means taking on a second or third job to come up with next month’s minimum payments.
If a credit card company decides to cut you a little slack, it doesn’t solve the BIG PROBLEM by any means. You can’t just live your life like that forever. Be proactive.
“could face being sued by the credit company and having your wages garnished or your bank account trimmed.”
Going to court (not just sending letters) is a multi-thousand dollar minimum expense on the part of the plaintiff.
If they obtain a judgement (which expires in a set number of years), they usually have to spend more money to enforce it.
A consumer who can’t pay the minimum on their credit cards probably won’t have any bank account balances to seize (if they do, the collection firm better be d**n sure those funds didn’t come from sources exempt from collection such as SS benefits)
And some U.S. states (e.g. Texas) flat out prohibit wage garnishment for consumer loans.
It was the roof over my children’s heads, was always my reason.
Thanks for the legal reasons - makes sense!
Good timely post!
Great post, but it does seem to me that making your mortgage one of the first priorities in bill paying is common sense. But, maybe it’s because my years as a banker drilled home the concepts of secured vs. unsecured debt.
Thanks for the good info.
“Going to court (not just sending letters) is a multi-thousand dollar minimum expense on the part of the plaintiff.”
Collections attorneys are in the business of obtaining judgments against defendants for the lowest cost to the plaintiff as possible. Plus, once the plaintiff is vindicated in court after a judge formally determines that the debt is owed, the defendant is required to pay the court costs, service fees, and attorneys fees, so it essentially costs the plaintiff ZERO to file suit, except for a retainer to hire the collections attorney.
This is why it is IMPERATIVE to know who you’re dealing with when you’re getting collection calls. If it is a run of the mill bill collector who is just pestering you to pay, then, by all means, blow them off. But once your account gets placed with a lawyer, take some notice. You wouldn’t want to spend all your time building equity in your house just for a judgment creditor to take a lien on it, making unsecured debt secured. Plus, you never know what your creditor’s policy is on writs of execution and garnishments.
In other words, never say never.
It is always more sensible to have a roof over your head than the latest gadgets or fancy and getting into credit card debt.
Anybody in this situation needs to take immediate action to cut way back on non-essential expenses, redefining what “non-essential” is. And then hold their breath. Sadly, today’s economy is creating a new hidden underclass.
[...] Why You Should Never Put Credit Cards Before the Mortgage Payment - As most of you know, I work for a bank (which is why I blog anonymously). I was talking with a friend a few months back who is a manager over in our credit card area. She said people were doing this and I was shocked! The reason? People often live off their credit cards these days. Stupid, stupid, stupid. [...]
[...] Why You Should Never Put Credit Cards Before the Mortgage Payment - Seems like common sense, right? You’d think so, but you hear a lot of stories about people who fall behind on their mortgage, while somehow staying current on credit cards. Whether it is the pestering phone calls credit card companies make, or the smaller minimum amount due, don’t let this stop you from keeping up with your mortgage! [...]
“so it essentially costs the plaintiff ZERO to file suit, except for a retainer to hire the collections attorney”
In the U.S., a civil suit for damages is still a jury trial, NOT decided by a judge.
Are you saying the collections attorney operates on contingency?
Then they’ll still have to foot the bills, so it is in their interest to pressure their client to settle.
[...] Frugal Dad explains Why You Should Never Put Credit Cards Before the Mortgage Payment. [...]
Good advice. Start with the basic life-supporting needs and if you pay the minimum CC fees you are good.
To your list I have to add also water as well. You better have running water in the house and you have to pay it in some countries.
[...] Frugal Dad suggests that it’s a bad idea to pay credit card payments if you can’t pay your mortgage payment. [...]
My husband thinks the CC company can come after your home if you are delinquent on the card. I’ve friends who say otherwise - anybody know?
They can sue you and put a lien against your house. But they can’t take it outright. At least that’s the law in Texas.
Thank you, Dana.
[...] enough money to pay all of your bills? Do your life basics first, everything else second. Frugal Dad wrote about this very topic recently. He worked for a credit card company, and shared some [...]
[...] Why you should never pay credit cards before the mortgage (or rent). Frugal Dad provides a great reminder of how to prioritize when you’re having trouble making ends meet. If things get tight, forget your credit score, forget the debt collectors calling, forget trying to keep space available on your credit card to use next month. Keep a roof over your head, keep food on your table, keep the lights on, and keep your car rolling. Then worry about everything else. Comment » Subscribe Via RSS » See Related Posts In Weekly Roundups » [...]
[...] Dad wrote Why You Should Never Put Credit Cards Before the Mortgage Payment and reminds us of the importance of keeping a roof over your head. If you had a major setback and [...]
We have five credit cards with sizeable balance (2 are over $10k and 3 are over $5k) - we had to use them to pay some property and irs taxes, as well as live on them for about a year while when my husband was laid off. Then I got laid off after returning from maternity leave. Between me and my husband, we were both making about $150k so we never thought that we would ever be in a situation where we couldn’t at least make the minimum on our credit card payments, but after a month or two of late payments, are interest rates went from 3.99% to 22.99%, tripling our payments. We can no longer continuing paying these accounts. How long does it usually take for the cc companies to file suit against us and what recourse, if any, do we have (other than filing for bankruptcy)? Thank you in advance for any answers we receive.
My concern is with the interest and late charges that keep accumulating on the credit cards. If intention is to eventually pay them off, and not declare bankruptcy, the amount owed would be double or triple by the time I get around to paying it off . Is there any way to halt interest and late charges on the amount owed? One of my cards zapped me with 29% interest by claiming default of terms-( I was 3 days late) raising interest alone to $500.00 a month! in addition to late charges. At that rate I will owe an additional $7000.00 a year just for interest and late charges. They refused to accept any type of proposed payment plan and continue to charge interest and late fee charges-what do I do?
Lynne, the solution is to talk to the credit card people when they call about a late payment. Tell them you are in a ‘financial hardship’ and they will close your account - eliminate all late charges,over limit fees and reduce your interest down to 0-6%.They are usually very nice about it. The payments are usually cut in half and they actually start to get paid down because the interest is so low. Credit cards are unsecured so they can’t take your house or lien your accounts. The best they can do is aggravate you by constantly calling or try to sue you. If they try to sue and you don’t have any money the judge will order 10.00 a month or something low.
Pay your mortgage, car, insurance,electric bill and skip the credit cards until you recover financially.
what happens if you get a call from a lawywer were they are saying they are going to sue u for the amount you owe. cause they think you had no intention of paying it back. however we did make payments til it got to high to pay back. we used the credit card for food, gas and to help with some bills. anyone got a suggestion on this. she is on SS and that is all the income we have.
I am only 29, but these last 13 months have been the HARDEST I have ever seen. We had our 2nd child august 07 and we decided that I would stay home. With having 2 kids in daycare, and a 50 mile round trip to work, it just wasn’t worth it. My husband was forced out of his job in june. He has a new job, paying not nearly as much. I am still at home looking for something part time at night. HAHA! We have talked to our mortgage company, and they told us we don’t make enough for them to help us. And that we should sell our house. I can’t believe that they would want to sell, considering the house isn’t worth what is owed on it. And our 2 credit cards are not budging. We are doing everything above, but there is never money left for cc’s. ls there something else we should try? Any advice would be wonderful.
Shannon, DON’T SELL YOUR HOUSE! That is a bad idea! The person who told you that is not looking out for your interest! Then where will you live? Pay your mortgage. At least with your mortgage you’re gaining equity every month (no matter how little)and when the housing market straightens out you’ll be able to sell for a profit if you decide. Every mortgage payment you make puts some equity back in your pocket. If you only have 2 credit cards you’re not doing so badly. They will call constantly and threaten you with anything they can think of to get you to pay. If you talk to them and tell them these words ‘financial hardship’ and ‘financially dead’ they will close your accounts and reduce your payments. If you can’t pay anything just ignore the calls or change your phone number! Remember that it’s their job to try to get you to pay - they are ruthless! But - their threats are bull. The most they can do is sue you but it’s not cost effective for them to do that. And if you have no money the judge can’t order you to pay! You have not commited any crime by not having enough money. If you got a credit card to charge to the limit then not pay, that’s fraud. Otherwise it is not. Credit cards are unsecured so they lose.
Before you decide to sell your house for no profit I’d think about walking away from the mortgage. What happens is that you stop paying and it would take about a year for them to kick you out. In that year save all the money you would have used for the mortgage and you could walk away with some cash. With a walk away you owe NOTHING! Even if you owed 300,000 and it’s only worth 200,000 you get out without owing anything. BUT you will have a foreclosure on your credit report which isn’t good.
Don’t feel guilty about letting the cards go bad. They are the ones that screwed us by changing their terms, interest rates, and other charges and got us into this mess. Just like their terms changed your financial situation did too.
I don’t know if everyone notices that the ‘powers that be’ are trying to get rid of the middle class and have just rich and poor.(much better situation for the rich) People are being scared into making the wrong financial move that puts them into the poor category. If I hear another commercial about the importance of you credit score I’ll scream! It’s a scam - if you don’t need a house, loan or car who cares about your credit score? 5 years ago did you ever hear about it- or think about it? They’re trying to scare us into paying out money we don’t have to ’save our credit score’. Everyone is in the same boat so soon it won’t matter as much what your ’score’ is.
Honestly, they can’t even get away with suing you if you have the proper defense. When you open your credit card accounts in the states the bank lends you money that they don’t even have. Check the link on my name- it is an interesting read. Essentially what happens is banks open transaction accounts under your name in order to lend you ‘YOUR MONEY’ then charge you interest and finance fees on top of it. I’m not saying don’t pay your credit cards, but when it comes down to you and your children eating you have the legal right not to. You can always dispute it if/when it becomes a negative entry on your credit report.
my husband and i have been in a financial hardship situation for going on 2 years and i can no longer pay any credit card payments, we have ten card equaling 12 thousand dollars. we have already filed bankruptcy 7 years ago and we do not want to there again. we were 3 months behind on our mortgage but are now almost caught up- we did a repayment workout plan- as a result we increase our house payment- only by 40.00 dollars - which is no big deal- considering we were about to be foreclosed on- i did a debt counselig plan but now i can not afford that payment. my husband and i have decided to pay our house and card and power bill- car ins also- everything else will have to be let go- i can not change the current situation and have decided to not worry about these cards- my home is more important- bottom line- frugal dad just made me reallize i am doing the right thing for right now.- thanks, kellah
i was laid off my job in august after 28 years. i then found i had cancer and had surgrey. i am going through radiation. i have filed for disability but have been told it will take till april.i owe my cards over 80000 and they are all going to collectors. between my wife and i we can barely afford our mortgage and insurance. is there anyway to get out of paying the card debts. i am told by doctors i can not work again, as i also have parkinsons and chronic arthritis and rls. i will never get enough money to pay the debt on disability.
[...] or talked down to by some idiot in a cubicle 500 miles away. Do not be intimidated into putting credit cards before the mortgage, or other basic [...]
I have mortgage, cars, boat, credit cards, and second vacation home. My income has dropped substantially and I need to decide what will NOT get paid. I’m thinking the correct domino fall down should be credit cards, then boat, then second home, then cars. Would this be correct?