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Despite paying off an estimated $83 billion in credit card debt in 2020, American households were carrying record amounts of debt in 2021. During Q3 2021, credit card debt increased by $23.6 billion. A recent credit card debt study by WalletHub found the increase in credit card debt in the third quarter was 46% bigger than the post-Great Recession average for a third quarter. Since unsecured debt has rebounded to pre-Covid levels, many consumers will be looking for ways to restructure their debt in 2022.

Credit card debt tends to be one of the highest interest-cost loans, with an average interest rate of more than 16%. Because of this higher interest rate, credit card debt tends to be difficult to pay down. The typical cardholder has a balance of $5,525. If they only make the minimum payments, it could take about 16 years and $6,000 in interest charges to pay off that card.

As you can imagine, credit card debt played a pivotal role in 2021 consumer debt, especially around the holidays. It is estimated that consumers added an additional $70 billion in credit card debt by the end of last year. Credit cards, therefore, provide an excellent opportunity for refinance (balance transfer) loans to credit unions to focus on in 2022.

While credit card balances have been high, buy now pay later loans (BNPL) also played a significant role in 2021 consumer debt. With BNPL loans offered at the point of purchase, the consumer can structure balances into defined payment intervals (typically four payments) to pay off the loan.

As of 2021, 56% of American consumers have used a BNPL loan, which is a 48% increase from 2020. While BNPL loans are touted as interest-free over the four structured payments, an estimated 36% of BNPL users were expected to make late payments, up 65% from last year. One in four users of BNPL do not consider BNPL to be a form of debt. With the number of BNPL consumers making late payments, this is an educational advocacy and refinance opportunity for credit unions.

While the cost of living has increased by almost 7% over the past two years, median income has decreased by 3%, adding further complexity for consumers trying to pay down debt. If consumers make the average monthly payment on credit cards or BNPL loans (after the interest-free period), a lower interest rate will result in a lower monthly payment, so the debt can be paid off faster. Reducing any monthly loan payment amount will be welcome in household budgeting endeavors for 2022.

Credit unions should also take advantage of this opportunity to empower members to take control of their financial health by offering balance transfers. Post holidays, credit card holders will be inundated with balance transfer offers, so how can credit unions get in front of their members?

Digital banking is an excellent channel to get refinance offers in front of members. The question is, how can credit unions conveniently identify members who fit the balance transfer refinance profile, while offering an experience that consumers understand?

On average, consumers check their credit scores once a month, and that monthly frequency is expected to increase with inflation. This creates an opportunity for credit unions to make offers at the time those consumers are viewing their credit scores.

If the offer is made by reverse-engineering the loan information from the credit report, all these calculations can occur in the background. Then the consumer is presented with the credit union’s refinance offer including the rate, reduction in payment, and savings for the consumer. There are three marketing advantages to this approach:

1. The offers are presented in the right place at the right time.
2. The offers are presented every time the consumer logs in (frequency of the offer is key).
3. New offers can be presented as additional tradelines are added to the credit report.

The level of credit card debt added by consumers is staggering. BNPL loan debt has further exacerbated debt problems. Increasing consumer costs, coupled with declining household income, means that consumers will be looking for ways to reduce monthly expenses. And consumers are busy with a lot of noise competing for their attention. Information overload is a REAL problem. An estimated 1 in 5 Americans admit to feeling overloaded by information. One of the outcomes of information overload is that decision-making can become a challenge.

Presenting balance transfer and debt consolidation loans in a platform that consumers already use (digital banking), based on a statistic that they regularly check (credit score), with interest rate and payment information based on actual data (credit report tradelines), enables consumers to take advantage of offers in the channel they rely on to manage their finances conveniently.

Consumers are looking for financial advocates to help them manage their financial journey now more than ever. The credit union mission of “people helping people” is based on financial advocacy. Consumers are clearly in need of credit union help to find better solutions to tackle their debt challenges.