Credit card use soars with housing woes

With millions of Americans struggling to make their mortgage of payments and home equity loans and refinancing less viable in the face of declining home prices, people are looking to another source of liquidity: credit cards.

According
to the USA Today, "Credit bureau analyses of consumer payment data show that financially squeezed borrowers have begun paying their credit card and car bills before their mortgages. That's a striking reversal from the norm, one that reflects rising desperation. It suggests that some people essentially have given up trying to stay current with their mortgages and instead are focused on using credit cards to squeak by."

In many cases, that's a perfectly rationale move. If you're likely to end in foreclosure anyway, you're better off avoiding tossing good money after bad. Paying credit card bills on time can at least let people retain the ability to, in some cases, literally feed their families.

The problem is that relying on credit cards while not paying a mortgage can lead to a vicious cycle of rapidly falling FICO scores and the resulting increase in interest rates.

I worry that a lot of people in this situation will find themselves out of a home and dependent for living expenses on credit cards with interest rates north of 15% -- a treadmill that will be very tough to get off.

20 years from now, a lot of people will still be suffering through the effects of increased credit card use in the face of lower FICO scores.
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