Banks and credit unions should be proactive and reach out to their customers, even if they have a credit card from another lender. With rising debt levels and delinquencies, financial institutions can help their clients. They can demonstrate ways to reduce debt and improve money management.
There is a rise in the rates of delinquency and credit balances. Although the levels of debt have not yet reached those seen during the recession of 2007-2008, smaller institutions must be well aware of this trend. Excessive debt could strain the consumers’ savings accounts, damage credit scores, and curb their ability to purchase essential requirements. This opens up opportunities for credit unions/community banks to step in with services that help customers overcome difficult financial times.
By 2023, financial institutions will have the potential to build sturdy relationships with customers by enabling them to get rid of debts. Credit unions and Banks can take advantage of this opportunity to create loyal customers by providing resources that will help in minimising debt and effective usage of money.
How can Banks Tackle the Issue of Credit Card Debt?
Unfortunately, current banking systems are designed to maximise interest and fees for banks rather than optimise the health of consumers’ credit cards. Credit cards should be used as a safety net than trapping people in debt. However, often, there is no way for individuals to set up regular payment plans that enable them to clear dues. Minimum payments only heighten the issue, as people end up paying in excess by way of interest charges.
- There should be platforms where card management is centralised, and people can view a consolidated statement of their debts and payment progress.
- Those financial institutions offering this facility can unlock growth in loans, as they enable customers to enhance their financial fitness and credit scores.
- It would also give institutions a lot of valuable data they wouldn’t have had access to.
A recent report has revealed that most Americans are struggling with revolving credit card balances. These have negatively impacted their credit scores and are draining their savings. Furthermore, many borrowers are only making minimum payments instead of paying down the full balance. This prolongs the time taken to be debt-free. The already concerning financial situation is worsened by uncleared fed student loans that have established dangerous spending habits in young people. This is because multiple minimum payment suspensions are in place since 2020 due to Covid-19.
The article has been published by the editorial board of the Fintek Diary. Happy Reading. For more information please visit www.fintekdiary.com
