Is it Better to Pay a Revolving Debt or a Mortgage?

Pay your credit card in full every month to avoid revolving debt.

Pay your credit card in full every month to avoid revolving debt.

Your bills need a pecking order for payment. Developing a system based on sound financial practices keeps you on track to pay off both revolving credit and the mortgage. If you’ve accrued some revolving debt on your credit cards that you don’t pay off every month, you’ll want to pay that debt before paying extra on the mortgage.

Revolving Debt

When you don’t pay your credit card off every month, you have revolving debt. You’ll have a limit on how much you can charge and as you pay, you can charge up to the limit again. You’ll also have a minimum payment to keep your account in good standing. Paying the minimum due continues to add interest charges to the account. As you pay down the debt, the card company reduces the minimum payment, lowering your mandatory payments but lengthening the time it takes you to pay the account in full. It's difficult to get through this revolving door because interest applies to the total due. You’re being debt savvy when you pay as much as you can on the credit card each month.

Organizing Revolving Debt

If you owe more than one credit card payment each month, make a list of your cards, balances and interest rates. Organize the list by interest rates from high to low, and pay all you can on the revolving account with the highest interest rate. Make minimum payments on the other balances. When you have the card with the highest interest rate paid off, start paying as much as you can on the next card on your list.

Mortgage Debt

Your mortgage debt is a fixed rate for the extent of your loan, unless you have an adjustable-rate mortgage, which means the rate can go up or down in the future. Tackle your mortgage debt as soon as you get your revolving debt paid. Owning your home is an achievable goal and understanding your mortgage payment makes it easier. Your mortgage payment has four parts -- principal, interest, taxes and insurance, referred to as PITI. Principal and interest are the base payment and taxes and insurance are your escrow account. If you pay your own taxes and insurance, you don’t have an escrow account with the lender. When you make payments larger than the monthly payments, pay with a separate check and designate the payment for the principal only to pay down your mortgage more quickly.

Tough Choices

If you have to choose between paying the mortgage and paying the minimum on your credit card, financial advisers often recommend paying your mortgage. The American public pays credit card debt first, according to a 2008/2009 study obtained by Reuters. Credit card debt is unsecured, which means there's no attached collateral that the card company can take. If you're in a temporary cash crunch, paying your credit card makes sense if you'll see your way clear to catching up on the house payment within a couple of months. Revolving payments affect your credit score and will make it difficult to get credit if you need it for a mortgage refinance or a short-term loan. Your lender secures your mortgage debt with the house as collateral. You typically have 3 to 6 months to catch up on your mortgage payments before your lender will file a foreclosure action against you.


About the Author

Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.

Photo Credits

  • Jupiterimages/Goodshoot/Getty Images