5 Reasons Why You Should Pay the Mortgage Before Your Credit Card

By: on 2014-05-13
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In today's day and age, everyone is living with debt. Gone is the time when that was seen as a rare or temporary thing. Nowadays, everyone has a car payment they owe, student loans that need to be paid down and a mortgage. Many have more than that. But while it's never enjoyable to have debt to pay down, there's a right and wrong way to do it.

Read along to know why it is right to eliminate mortgage debt first and pay off credit card debt later.

Reasons to pay down mortgage before taking care of credit cards

Here are five reasons why you should pay your mortgage first before addressing your credit card bill.

1. Mortgage Lenders Will Not Accept Partial Payments

Just about every form of debt you have can be paid off in partial payments. That's not to say this method is ideal, simply that it's possible. So if you have a car note due in the amount of, say, $200, your lender will accept half that if that's all you have. It will go to pay down your balance and you will be given credit for at least making a payment. Again, although this is not ideal, it's at least something. If your lender was ever considering repossessing your car, this could give you some leverage.

Your mortgage lender will not accept partial payments though. They will only accept full payments. So if you miss one last month, you now need to make two in full. This is generally very difficult to do, making it easy to fall behind. Worse still, once you miss two or three payments on your home, most lenders will be within their rights to foreclose on you. Your family would obviously hate to give up their safe abode due to irregular mortgage payments.

2. Mortgages Are Secured Loans

Speaking of which, your home makes your mortgage a secured loan . That means there is something backing it. When you take out your mortgage, you immediately use your home as collateral for it.

On the other hand, your credit card debt is unsecured. While you never want to fall behind on paying off your credit card debt, there isn't actually anything the company would be owed in terms of security or collateral. They can only file a civil suit against you if credit cards are not paid off within the statute of limitations period. You wouldn't go to jail or lose your home.

But, again, your mortgage is a secured debt and your home is what backs it. So if you stop making payments, the bank can foreclose on your home, essentially taking it away. That opens up a whole new can of worms you simply want to avoid.

3. Mortgages Affect Your Credit Score the Most

Your credit score plays a huge role in your overall purchasing power. No matter how much money you ever earn down the road, your credit score will still haunt you if you make poor decisions. So it's important you always take care to nurture a good score.

As it turns out, missing mortgage payments has the biggest effect on your overall credit score. This means, even if the worst case scenario of losing your home doesn't happen, missing mortgage payments could still doom you for years to come. You may not be able to obtain loans at favorable terms in future.

Furthermore, it will hurt you in the immediate present as well. If you mess up your credit score by missing mortgage payments, your credit limit will drop. This will give you less purchasing power to pay down other loans.

4. Your Home is More Important

If worse came to worse, which one would you rather be defaulted on? Aside from what we said above about the impact a defaulted mortgage can have on your credit score, which is more essential to your quality of life―your home or whatever you buy with your credit cards?

It's not like you're only using your credit cards to buy things you don't need. No one is saying that. Undoubtedly, you probably use your credit cards to purchase groceries and other essential items.

However, there are other options for those things if it really comes down to it. You can turn to family and friends or communities to get everything from food to clothes if that's what's necessary. It will be much harder to turn to these resources for a new home. Plus, losing your home will mean you need to find a new one, which will automatically become much more difficult. Losing your home could affect your employment. Losing your home could negatively impact your safety too.

5. Refinancing Your Mortgage Is More Important

No matter how much credit card debt you've accrued, it's unlikely the amount is near as much as your mortgage. For this reason, you always want to keep your mortgage lender happy. Someday down the line, you may have the option to refinance. When that becomes a possibility, chances are you're going to want to take it. Refinancing means that you can lessen the amount you need to pay each time. Obviously, this can make a huge difference.

However, a mortgage lender may be unwilling to discuss this option with you if you've had a history of missing payments. Of course, the same could be said for your credit card company, but then you have to consider which the greater amount is. Would you rather be able to refinance tens or even hundreds of thousands worth of debt with your mortgage lender or far less with your credit card company?

Because credit card debt is unsecured, companies tend to be extremely aggressive in trying to collect it, sometimes resorting to less than reputable means. For this reason, it can be easy to want to pay your credit card bill first. Resist this temptation. Keep in mind the above advice and consider reading other frugal living tips here . These will help you keep control of your finances and pay your mortgage first.

Last Updated on: Tue, 13 May 2014

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