It’s in your best interest to help customers manage their debt.

We’ve talked about financial literacy quite a bit, haven’t we? And why not? We shouldn’t wait until April to talk about its importance. Given the state of the economy, it’s pretty important right now. In fact, according to a recent report from lendingtree, “Americans have an absolute mountain of credit card debt — $986 billion, to be exact.”  While this is, of course, an unenviable and challenging position to be in as a consumer, it does present opportunities for community banks.

Granted, the credit card business is concentrated largely among a handful of large banks, but smaller banks are exposed to potential losses. As we all know, excessive debt depletes consumers’ savings, erodes their credit scores, and limits their ability to buy homes and cars, as well as other expenses such as paying for college. 

Times being what they are, your customers are – more than likely – relying on their credit cards far too often and probably making smaller monthly payments than they could or should. This is especially true of younger customers who carry student debt. With loans in forbearance, these important banking customers have, unfortunately, learned some unhealthy money management habits. The result is that we now have roughly 45 million people who haven’t accounted for monthly federal student loan payments in their budget for three years now.

One of those critical services that you should be offering your customers on a regular basis is guidance, especially at this moment is managing their money… their debt, in particular. How should you advise them and, hopefully, bring some clarity to what they’ve seen and heard?  Here are a few things you can talk about:  

1. Maintain and monitor credit closely: Free weekly credit reports are available through the major reporting agencies and can be accessed simply by visiting AnnualCreditReport.com. Whether or not they’ve missed any payments, staying on top of credit reports and scores is always a good idea. Should inaccurate information be found – in the case, for instance, of fraud or identity theft – actions can be taken in a timely manner to limit exposure.
2. Prioritize debt: According to US News, this starts with “taking advantage of the CARES Act and the temporary credit score protection offered to those who are unable to make their minimum monthly payments.” If their accounts are currently in good standing, your customers can ask their lenders for payment accommodations. Then, if they can pay some of their bills but not all of them, they should prioritize based on the two different types: secured and unsecured. Paying secured debts first, i.e. mortgage and auto, ensures that they do not lose their home or vehicle.
3. Making every effort to make payments on time: While it may get difficult, it’s best to make at least a minimum debt payment by its due date every month. Credit scores are greatly impacted by late or missed payments. If your customers hope to emerge on the other end of this crisis with a credit score that will serve them well, they should make every attempt to maintain on-time repayment even if they’re only paying the minimum amount. 
4. Make use of debt management services:  Debbie.com is just one example. The service partners with community banks and credit unions to help their customers better manage their personal finances. Debbie pulls together credit card data, then utilizes tactics such as behavioral psychology, positive reinforcement, and cash rewards to motivate borrowers to shrink their debt and improve their financial habits.
5. Have a strategy in place: While relying on credit should be approached with caution, there are strategic ways to use it during tough economic times. If job loss or reduced income leads to unexpected expenses, a well-managed credit card can serve as a temporary bridge. However, it's crucial to have a repayment plan in place to avoid falling into a cycle of revolving debt. Create a budget that outlines how you will pay off any credit card charges as quickly as possible. Prioritize paying off existing debt and avoid taking on additional credit unless absolutely necessary. Consider debt consolidation options, such as low-interest HELOCs, to streamline multiple high-interest debts into a single, more manageable payment.

Be the trusted advisor your customer needs

When it comes to important matters that can have a long-lasting impact on such things as credit, financial institutions have not just an opportunity, but a responsibility to keep their customers informed. Take this opportunity to be the trusted advisor that your customers need. That’s why we’ve created campaigns, like the one below, that you can post to your social platforms and get the word out.

About Bank Marketing Center 

Here at bankmarketingcenter.com, our goal is to help you with that topical, compelling communication with customers; the messaging — developed by banking industry marketing professionals, well trained in the thinking behind effective marketing communication — that will help you build trust, relationships, and revenue. 

To view our marketing creative, both print and digital – ranging from product and brand ads to social media and in branch signage – visit bankmarketingcenter.com.  You can also contact me directly by phone at 678-528-6688 or via email at nreynolds@bankmarketingcenter.com. As always, I welcome your thoughts.