U.S. consumers continue to show greater discipline in making on-time credit card payments compared with their mortgage payments as part of a phenomenon that began with the most recent recession, new Experian data show.
Cash-strapped consumers are choosing to pay off vital credit card accounts versus making payments on homes whose values continue declining, and to do so they are leaning on savings and maturing certificates of deposit, one analyst contends.
Compared with 2007, 20% fewer credit card payments overall through the first half of this year were at least 60 days late, while 25% more mortgage payments were at least 60 days late, according to an Aug. 12 report from Costa Mesa-based Experian PLC.
In certain regions the effect is more pronounced, Experian data for 30 major metropolitan areas show.
Cities with the highest rates of improvement in consumers making on-time bankcard payments since 2007 include Cleveland at 34.7%, San Antonio at 30.5%, Cincinnati at 30%, Dallas at 28.8% and Houston at 28.6%.
Cities with the highest percentage increase of consumers late on their mortgage payments include Portland, Ore., at 99.9%, followed by Phoenix at 78.4%, Baltimore at 66.8%, Seattle at 65.1% and New York at 49.4%.
The data suggest that consumers are reacting to economic changes and shifts in the types of funds available to households over the last few years, Dan Geller, executive vice president of San Francisco-based Market Rates Insight Inc., tells PaymentsSource.
Before the recession, when housing values were higher, many consumers routinely used home-equity loans to pay off large credit card balances, Geller says. As home values tumbled and home-equity funds dried up, consumers increasingly turned to savings, particularly CD accounts as they matured, to pay off credit card balances, he theorizes.
“CD balances declined by $708 billion since the official start of the recession in December 2007 through May of this year,” as the certificates matured and interest rates remained low, making them less attractive as investment opportunities, he says.
“If you’re getting 1% on a CD and you’re paying 15% on your credit card account, anyone can see that putting that money toward an outstanding credit card balance makes sense,” Geller says. “Our analysis shows that a large majority of the reduction in credit card revolving debt is directly tied to a decrease in national CD balances.”
