Did you know that, according to 2021 fourth-quarter data from the Federal Reserve Bank of New York, Americans have over $856 billion worth of credit card debt? The amount rose tremendously from the third quarter of 2021, increasing by $52 billion. It is the most significant quarterly increase the U.S. has seen within the past 22 years and the third and only spike since the start of 2020.
Although it's not quite as bad as 2019's fourth-quarter balance of $927 billion, it's still substantially greater than the $478 billion we saw in the first quarter of 1999. Part of our nation's debt problem boils down to overcomplicated payment processes and inconvenient experiences. As a credit union (CU), you have the opportunity to offer peace of mind and improved financial standing to your members by helping them pay off their credit cards with ease.
Credit Card Debt Through The Years
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 in the chart here 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
Sadly, the majority of people with a credit card, don't pay their entire monthly bill. In fact, over half of all active credit card accounts retained a balance in the fourth quarter of 2021. When you take a look at all credit card accounts during that same period, you'll see (according to data from the American Bankers Association), 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.
When you open up different avenues for making payments, you start appealing to more people. For example, one person may be able to swing by your branch on their lunch break and make a payment, while another person doesn't have access to a car temporarily and would benefit from using the phone. Ensure that over-the-phone, electronic bill pay, or in-branch payments are available to all your members, as this will provide additional convenience and be much more attractive to different types of members with varying schedules, needs, and preferences.
- Don't forget about serving small businesses.
Diversification of card offerings is essential in the competitive financial sphere. Small businesses account for 44% of all economic activity, so you certainly don't want to leave them out when it comes to encouraging timely credit card payments. Offer efficient merchant card processing and business credit cards to local small businesses and make sure they're aware that your CU is available to help them.
- Embrace an integrated system.
An integrated payment system can give your CU the ability to offer a seamless, safe, and simplified member experience when it comes to making credit card payments. With an all-in-one system, you'll be able to easily process card payments for loans in your branch or via phone call, obtain payments for account funding, acquire collection payments, and so much more. It's truly a win-win for your credit union and your 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 allows us to integrate credit card processing and further support our members in making payments quickly and efficiently. This integration works seamlessly on a web browser and through a convenient mobile app. Through the web service portion, members can easily transfer funds or pay for a loan using a credit card from another institution. In addition, members can pay in-branch and over the phone, all within the singular 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!