Dive Insight:

• Consumers who had a single credit card preferred paying off credit card balances before personal loans to maintain liquidity during the pandemic, according to a recent study by consumer credit reporting agency, TransUnion. 

• But consumers who had multiple credit cards prioritized the personal loans, though the gap in delinquency rates between the two narrowed, indicating that preference lessened during the pandemic, the study found. 

• Home mortgages became a priority over credit debt and auto loans. "The mantra, 'you can't drive your home to work,' doesn't have the same effect when millions of Americans are waking up, showering, eating breakfast and taking only a few steps to their home office," said Matt Komos, vice president of research and consulting at TransUnion.

Dive Brief:

TransUnion's "Global Payment Hierarchy Study" found the COVID-19 pandemic had a pronounced effect on how people paid their debts, particularly when faced with financial stress. 

Credit card payments experienced shrinking delinquency rates during the pandemic compared to personal loans, as consumers tried to maintain liquidity during the crisis, Komos said in an interview.

Credit card delinquencies for consumers with a single credit card and one personal loan dipped during the pandemic. Delinquency rates for single credit card holders was 1.48% in Q3 2020 compared to 2.62% in Q3 2019, while delinquency rates for personal loans was 1.66% in Q3 2020 compared to 2.36% in Q3 2019. 

For consumers who held multiple credit cards, personal loans took priority for payment over the card debt. Delinquency rates for multiple credit card holders was 1.78% in Q3 2020 compared to 2.94% in Q3 2019, while delinquency rates for personal loans was 1.11% in Q3 2020 compared to 1.49% in Q3 2019.

"Some of it might be kind of automatic payments that tend to be more common amongst personal loan lenders, as it is a more manageable set of payments. If I have a personal loan, it's an installment payment so I know exactly how much I owe every single month," Komos said.

"Whereas your credit card payments are a little bit unpredictable, as it's based on how much debt you hold on the card. Interestingly, the study showed across regions that consumers with just one credit card prioritized payments on it ahead of a personal loan, he said. 

Overall, consumers in the U.S. preferred making mortgage payments over auto loans and credit card balances.

Mortgage loans had a 0.75% delinquency rate in Q3 2020 compared to 1.95% and 1.13% of credit cards and auto loans, respectively.

In Q3 2016, consumers preferred paying auto loans more as the delinquency rate for auto loans was 1.23% compared to 1.34% on mortgages. 

Mortgages took payment priority over auto loans and credit cards for the first time in Q4 2017 after the financial crisis. That trend continued through the pandemic as houses not only became a place of shelter, but also a place of work for many Americans. 

"During 2020, we noticed that the difference between auto and mortgage delinquency that we observed became even more pronounced," Komos said. "Home values, which had a strong relationship to consumers prioritizing mortgage, have been going up significantly over the last 5-6-7 years and so we know that is likely helping drive the payment prioritization of mortgage first. "

Rising home prices and increasing home equity among homeowners are a big reason why consumers are prioritizing mortgages over auto loans. 

Consumers felt "like they have more to protect as home equity grew significantly since the last recession," Komos said. Consumers prioritize that debt obligation because there's even more to protect than before, he said.

Despite the economy slowly opening up, Komos doesn't expect consumer credit payments to pivot quickly. 

"At least in the short term, I don't anticipate that there'll be a significant shift in the payment hierarchy," he said. "We'll probably continue to observe what we've seen through the pandemic," Komos said, explaining that the work-from-home standard will continue to impact the hierarchy of payments for now.