Personal finance has emerged from the shadows as a topic of widespread discussion. The internet serves as a platform for breaking down barriers and shedding light on personal finance matters. Many individuals delve into the realms of budgeting, purchasing habits, and debt repayment strategies.
Credit card debt often takes the spotlight as the villain in financial narratives. Countless individuals embark on journeys to eliminate this debt burden.
In the following blog post, we will dive into the concrete figures surrounding American credit card debt, explore the underlying reasons why individuals fall into this debt trap, and underline the pivotal role that credit unions play in steering people towards financial stability.
Credit Card Debt Through The Years
Did you know that Americans hold $1.1 trillion of credit card debt? This amount highlights the ongoing financial challenges many individuals face.
Credit card debt was high right up until the economic crash in 2008. During this time, debt decreased from $866 billion in Q4 of 2008 to $660 billion in Q1 of 2013.
Despite this decline, you can see that sky-high balances made their comeback. Once COVID-19 hit, balances fell once again, tumbling from $927 billion in Q4 of 2019 all the way to $770 billion in Q1 of 2021. Nevertheless, when you look at the chart, you can see that the debt rose after an unusual spike during Q4 of 2021.
What's Causing Credit Card Debt?
Most people understand the rules of having a credit card at their disposal. They know they have to pay off the balance every month. However, life often brings unexpected expenses, from job loss and medical emergencies to necessary home or car repairs.
As a result, sometimes a person simply can't make the full payment in time. Other common situations are due to irresponsibility and ignorance. Some of these include:
- Spending more to earn rewards from specific credit card rewards programs
- Getting sucked into promotions such as sign-up bonuses and 0 percent interest purchases and balance transfers
- Consistently purchasing items without being able to afford them
- Living in a cashless society with constant access to lines of credit
- Splurging on highly expensive items or occasions such as weddings, homes, and vehicles
Unfortunately, the majority of credit card holders do not pay their full monthly bill. Over half of active credit card accounts had a balance in Q4 of 2021. Data from the American Bankers Association shows that 40% were active with a balance, 36% were active without a balance, and 24% were entirely inactive.
How to Create a Convenient and Easy Credit Card Payment Process For Your Members
The world of credit cards and payments can be a bit chaotic and confusing at times, especially for members who are new credit cardholders. So, what can your credit union do to encourage your members to make their monthly payments and make the process a little easier? Here are a few ideas to consider:
- Allow members to pay in multiple ways. Offer multiple payment options to cater to diverse member needs and preferences, including over-the-phone, electronic bill pay, and in-branch payments for added convenience.
- Don't forget about serving small businesses. Offer diverse card options to cater to small businesses, accounting for 44% of economic activity. Provide efficient merchant card processing and business credit cards, ensuring they know your CU can assist with timely payments.
- Embrace an integrated system. An integrated payment system streamlines credit card payments for members, allowing for easy processing of loans, account funding, collections, and more, benefiting both your credit union and members.
Provide a Seamless Payment Experience With FLEX and Beyond
Here at FLEX, we partner with Beyond Payments, an industry leader in credit card payments. This partnership integrates credit card processing for quick and efficient member payments on web browsers and mobile apps. Members can easily transfer funds or pay loans using credit cards from other institutions, in-branch, or over the phone, all within the FLEX core system.
If you're interested in improving your credit card payment strategy and creating a better member experience, take a look at our Payments eBook to learn more!
