Paying credit cards before a mortgage? What???
I work in IT for a bank. During our monthly team meetings, we often have guest speakers from different areas of the bank come and talk to us about their area. One of our recent speakers was from our credit card division. While not a fan of credit cards, learning about the business model was interesting. The amount of profit and high level of default rates was plain scary. The one quote that caught my attention was “Credit cards have become such an important financial tool, that people are now paying their credit cards before their mortgage“. My first reaction was that I didn’t hear what she said correctly which was immediately followed with a resounding mental “WHAT???”. I wrote the quote down along with the question “Why??”. Rather than interrupt the presentation, I decided to follow up with her afterward.
Her reply to my “What???” was rather interesting. The bank itself was even curious as to why this was occurring and did some informal polls. The reason is that many people are literally living off their credit cards, so they pay them first to be able to sustain themselves for the next month.
Why paying credit cards before your mortgage is a really bad idea
I’m not sure what’s happened with the American economy and America’s view on spending to cause people to change their priorities, but paying your credit card first is a really bad idea. Payment priorities should be life basics first, everything else second.
Life basics should always, in every situation, be your primary focus. Don’t have 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 insights on the bully tactics they use to scare you. Don’t let them scare you and don’t let them bully you. Take care of your needs first, and as Frugal Dad says “If you have money left over after paying those four basic categories, then by all means make your credit card payment minimums.”
Get control of those cards
Once you have your payment priorities in order, it’s time to break that credit card cycle:
- Cut up all of your cards but one. While you may think you need them, you really don’t.
- Begin building a baby emergency fund. $500 – $1000 dollars depending on your needs.
- Create a budget, and significantly trim back on your expenses. Nothing in this world is free, and getting out of debt is not exception. Also, look for opportunities to increase your income as well. Maybe start a few online stores.
- Start a debt snowball and pay against those cards like crazy. Just wait until you pay one off, the feeling is great!
Credit cards not required
Contrary to popular belief, credit cards aren’t required, nor should they be the norm. Debit cards work just as well. Don’t believe me? Give it a try. If you are struggling with irresponsible credit card use, put your cards up for a month and live without them. I haven’t used a credit card once in 2 years and haven’t missed them one bit. I’m still paying on them, but each time I make a payment I feel a little more free, a little more load off my back.
If you are struggling with credit card debt and/or putting credit card payments first, I challenge you to do the same.
Photo by: kalleboo