For most people, financial education was left out of school and career training. Financial knowledge barriers block well-meaning individuals from securing loans, paying off debt, and elevating their savings. But the fintech sector is pushing back, giving more people the opportunity to achieve their financial goals through a variety of high tech tools.
The onset of the pandemic highlighted economic inequalities, even as it also brought about digital transformation in the workplace, in supply chains, and in the palms of consumer’s hands. And with other countries inching towards cashless societies, the demand for fintech debt management solutions has increased.
Fintech has answered banking shortcomings with forward-looking solutions that include security, digital payments, and lending. Now the sector has found a new role to fulfill in the area of debt management. Let’s take a look at how fintechs are beginning to pivot toward debt management solutions to help customers and break banking barriers.
Better tools, better finances
According to the Federal Reserve, the unbanked and underbanked population in the US has reached 22% of adults. Workers in the hardest hit industries such as entertainment, hospitality, and manufacturing – already some of the lowest paid workers in the US – are expected to take five years to recover to pre-COVID financial levels.
According to one report, the total debt of US consumers grew to $800 billion, an increase of 6% from the previous year and the highest annual growth jump in over a decade. This has created significant demand for debt relief services that run similarly to the financial technology people are becoming more accustomed to. While there are an array of services and strategies for overcoming debt, many of them are systemically inaccessible.
In addition to a widespread lack of financial literacy, the US also suffers silently from reading literacy as well. The Department of Education reports that 54% of adults ages 16 to 74 read at about a sixth grade level. The impact of this crisis is enormous considering that literacy rates are directly correlated with important outcomes in several other areas such as personal income, employment levels, and economic growth in general.
Add that to the fact that banks and credit unions often use language that can only be understood by less than half of high school graduates, and you have a recipe for widespread financial ruin.
Life insurance is another issue that faces families and individuals with limited financial knowledge. In the event of a financial disaster such as job loss or death of a primary breadwinner, having a life insurance policy can be beneficial. But the fact is that not many people know how to use this resource. In Canada, for instance, only a third of adults with children report having a life insurance plan in place, and in the United States, only 52% have life insurance.
In sum, the struggles that were realized by everyone in 2020 were amplified for those living in debt. So while fintech has made huge strides in personal finance, there is still much to be gained from exploring debt management solutions on a personal scale.
Debt management in Fintech
Fintech offers many solutions such as mobile account access, peer-to-peer lending, bill payment tools – and now debt management apps. There are now several apps on the market that are geared towards helping consumers erase their debt.
While it is recommended that individuals save between 3-12 month’s worth of expenses for emergencies, many are only scraping by without the means or the education necessary to build their savings. This is where debt management apps can really prove their value.
The most popular type of debt management fintech is the round-up app where a predetermined amount of money is set aside as soon as direct deposit is hit. Other types of debt management apps mainly assist with automating payments so consumers can’t forget and accidentally get behind on their payments.
Here are just a few examples of Fintech apps that are beginning to change the tide for so many living in debt:
- Pillar – Recently acquired by Acorns, this AI-powered startup helps consumers create a roadmap to getting out of student debt. In the future, Pillar will be available as a part of a subscription tier that allows customers to use the model of setting aside money as soon as they get paid to prioritize student loan repayment.
- ChangEd – Another round-up app, ChangEd creates an easy way to automate regular payments to pay off your student loans. What sets them apart is that the app also helps users set aside extra payments so that they can pay off their loans sooner.
Credit card debt
- Tally – This debt management app automates credit card payments so users can pay down their debt more quickly. Tally also offers a line of credit that consolidates consumer debts into one simple loan with a low APR and helps customers determine the best way to save money based on user activity.
- Debt Manager – This simple app uses consumer debt information to create graphs and chart progress to provide a visual of paid and remaining debt. This interactive app utilizes the Snowball Method of debt repayment to manually or automatically make credit card payments. You can also make data-driven decisions with it’s different scenario calculators.
Other personal debt
- Digit – Although not a traditional debt management app, it serves its purpose as a debt management tool. Another app in the round-up category, it helps users save money automatically without having to think about what else they could spend their money on. While there is no specific debt category for savings, it can easily be created by users so that they can begin to pay down their debt.
- Mint – Mint is one of the most well-known apps for budgeting, but they’ve also made strides in debt management. This app gathers all of your finances in one convenient location so you can track payments, cash, credit cards, loans, investments, and more.
One of the greatest challenges for today’s economy is achieving secure banking access for customers around the globe. Fintech provides apps that provide so many people with vital banking abilities and access to credit so they can better plan for their financial futures. Debt management is just one of the ways fintech continues to shake up the finance sector.