More Americans using credit cards to stay afloat

— -- Seven years in the credit-counseling business didn't prepare Ann Estes for the alarming trend she began noticing last fall: As her clients' mortgage bills became unaffordable, a growing number of them began paying their credit card bills before — and sometimes instead of — their mortgages.

"We've never seen anything like this," says Estes, who counsels clients by phone from her office in Richmond, Va. "Their homes are at risk, and they know it. But people say, 'I don't want to let my credit cards go because that's my cash flow.' "

Across the nation, credit counselors are reporting the same trend. 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.

If the trend persists, many economists say, it could accelerate mortgage losses and further drag down the economy.

Rising living costs, along with cheap and plentiful credit, have led consumers to rely more on plastic to pay for necessities they can't live without — and luxuries they don't want to do without. But as the economy weakens, consumers are starting to spend less on discretionary items, such as furniture and electronics, and more on such necessities as groceries and gas, according to government data. Such items increasingly are showing up on credit card bills.

"Everything's going up — dairy, gas, home taxes," says Christie Carlson, 34, a single mother of five children, ages 5 to 14, in Tomah, Wis., who enrolled in a debt-management program after racking up $20,000 in card debt. "I'm trying to pay more for everything in cash, but it's just impossible. It's not feasible right now to stop spending on the credit card."

During the past year, credit card debt has ballooned most rapidly in parts of the nation where the economy is particularly weak, including California, Florida, Arizona and Nevada, says Mark Zandi, chief economist for Moody's Economy.com.

"That suggests that people are turning to their cards in times of financial need," Zandi says. "They're losing jobs and overtime hours and other income and trying to supplement their lower incomes with more spending on credit cards."

Magnifying the problem has been the shrinking availability of a major alternative to credit cards: home equity loans. As home values have sunk, homeowners have found it tougher to qualify for such loans. So they've turned elsewhere, especially to credit cards, to cover daily expenses.

Even as mortgage growth slowed from April 2006 through December 2007, card debt accelerated, according to an analysis by the Center for American Progress, a liberal think tank in Washington, D.C.

"As people get squeezed, they still have the credit demand," says Christian Weller, a senior fellow at the center. "For a few years, mortgages and home equity lines replaced credit card debt. Now, we're swinging back to the credit cards."

Like 'broke college students'