Many homeowners also have credit card debt. When times are tough and the budget is stretched thin, sometimes it seems as though you need to make a choice between making a mortgage payment or making your credit card payments.
When push comes to shove, and you have to choose one or the other, what you decide depends on your circumstance.
Do You Want to Keep Your House?
The biggest thing you have to consider when making the choice between making a mortgage payment or a credit card payment is whether you are trying to keep your home. If you want to remain in your home, retaining ownership, you have to make your mortgage payments.
Missed mortgage payments can lead to foreclosure, resulting in the loss of your home.
Credit card debt, on the other hand, is not secured by an asset. It is unsecured debt. While creditors can sue for payment, they cannot repossess your home, and if you declare bankruptcy, you might even be able to have the amount you repay reduced.
While I am not advocating bankruptcy, this is something to consider. In most states, as long as you are up on your housing payments, you are unlikely to lose your home in bankruptcy, and credit card issuers can’t force you to sell your home to repay your unsecured debt.
If you aren’t concerned about your keeping your house (or a good credit score), you might want to concentrate on the credit card debt, with its higher interest. You will eventually lose your home, though, and you might have trouble getting another place to live.
What About Your Credit Score?
The exact formula used for credit scoring isn’t released to the likes of you and me, but we do know that missed payments can have a big impact on your credit score. A missed credit card payment can bring your credit score down by quite a bit — especially if you are more than 90 days late in paying.
However, if you have gone through a foreclosure, your credit score can be dropped by more than 200 points. You might want to consider the impact of your decision on your credit score, especially if you think you want to get a major loan in the next year or so.
Trying Your Best to Avoid the Situation
Of course, it’s always best if you can avoid having to make the choice altogether. Living within your means and having an emergency fund to help you pay for unexpected expenses can help you avoid having to make this decision.
Also, if you can cut spending in order to have more money to put toward your obligations, this is also helpful.
There are times that you might not be able to avoid this decision. Job loss or some other situation may arise, forcing you to skip the payment of some bills. If you know that you are going to have trouble making payments, you should contact your lenders to let them know of your situation and perhaps get a deferral, or work out some sort of a new payment plan.
In the end, it is important to carefully consider your options, and understand your goals and preferences. Only then can you make a decision that will provide the best possible outcome in your situation.
photo by nikcname