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Solving Borrowers Long-term Needs

By August 22, 2023Mark's Minutes

The economy keeps chugging along despite the predictions from seemingly everyone. Although interest rates have increased, all signs are showing that the economy is resilient. But things aren’t exactly what they seem. It depends on where you look.

There are areas of growing consumer risk.

Credit Card Debt is Climbing

A recent article from CBS News reports the following:

“More Americans are racking up credit card debt as inflation pushes up the cost of food, utilities and other staples.” And, “60% of credit card holders have been carrying balances on their cards for at least a year, up 10% from 2021.”

“59% of Americans who earn less than $50,000 a year carry a credit card balance from month to month,” the reporting notes. “The percentage drops slightly to 49% for those who earn between $50,000 and $80,000 and dips again to 46% for people making $80,000 to $100,000 a year.”

Most people don’t want to compromise their lifestyle choices when they are coming up short during these inflationary times. So, they are making up the difference with credit card spending.

And with some of today’s credit card rates hovering around 25%, it doesn’t take long to rack up massive debt.

The Real Cost of Consumer Debt

Making excessive interest payments is not a healthy practice. The credit card trap relies on those that get into a terrible habit of running up balances, resorting to the minimum balance payment, and never paying off the principal. Once you arrive at the cycle, it’s almost impossible to break.

And, when someone does default, everybody else pays for it through higher rates and fees.

Repackaging Loans and Educating Consumers

Before things get worse, now is that time to reach out to those account holders in need. You can pro-actively move those high balance accounts into lower priced options, such as home equity loans. But just as important as solving that initial problem, you can augment this effort with some financial education to help your users from becoming a statistic.

Tools that can help you focus their efforts on sound financial management include:

• Webinars covering the ABCs of household finances

• Educational web pages sharing the true cost of financial decisions

• Financial planning brochures with worksheets and budgeting tools

• Individual counseling

While many of these tools have been in existence for years, often people don’t notice their availability or their need until they are beginning to face financial discomfort. And that becomes the time that you can help them plot a new trajectory for their life.

Help them now…and forever.