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They opted to let their mortgage payments go while keeping current on all their cards. "I would rather be late on one thing than on several things," said Rossman, who works at a local church, pointing to the "very high interest rates" on their cards and the need to keep accessing credit. "But we can't just incur debt forever," Rossman, 24, also acknowledges. "We're cutting coupons, eating very cheaply and doing everything we can to stay within the budget."
So far, the couple's mortgage lender hasn't moved to take back their house.
"I'm sure they can't be nice forever," Rossman said. The couple have put their three-bedroom house up for sale, joining a dozen families trying to sell homes in a neighborhood of some 130 households.
But even though people like the Rossmans are forgoing their mortgage payments in favor of credit card bills, the crunch that started in the home-loan market is starting to seep into cards and other consumer-credit sectors. Moody's Investors Service, a bond-rating agency, notes that more U.S. consumers are beginning to fall behind on credit card payments. Credit card companies, it says, wrote off 4.58% of payments as uncollectable between January and May, up nearly 30% from the same period last year.
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As people such as Delana Dowdy in Darby, Mont., found out, falling home prices and tightening credit have made it harder to withdraw home equity to pay off debts such as credit card bills.
"The appraised value (of the house) didn't come high enough to consolidate our bills," said Dowdy, 36, who runs an antique store. Right now, she's behind on both her mortgage payment and card bills.
So far, the housing-market turmoil hasn't forced credit card issuers to dramatically tighten their lending policies, though some banks have begun raising transfer fees and interest rates for some customers.
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House or credit cards?CNBC's Mary Thompson reports on the more and more people who are willing to give up their houses before their credit cards.
"Challenges in the mortgage industry have not affected our credit card policies," said Kevin Rhein, head of Wells Fargo's card-services unit. The San Francisco bank, he said, continues to be "a reliable, responsible lender that offers competitive pricing for consumers and sound investments for capital-markets investors."
And some analysts don't see an immediate danger to investors holding bonds backed by credit card receivables. Cynthia Ullrich, a senior director in Fitch Ratings' asset-backed securities group, said the outstanding deals have "sufficient" cushions to accommodate an expected increase in card delinquencies in the coming months.
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