Is credit card debt among your workers hurting your organization?

Rising credit card debt is a symptom of a larger problem: worker cash-flow gaps. Smart employers recognize the problem and are exploring our role in bridging the gap, including among other things offering resources for workers to pay off credit card debt.

Is credit card debt among your workers hurting your organization?

Inflation or corporate greed or modern money theory or a host of other maladies are harming workers, businesses, and organizations, depending on whom you ask.

But credit card debt? Is that something we as smart employers must care about now, too?

Short answer: yes.

Credit card debt is rising

Credit card debt is rising.

It’s a tip of the iceberg thing, a symptom: roughly one in five credit card users are maxed out, per the latest Quarterly Report on Household Debt and Credit from the New York Fed.

Credit card delinquencies are rising, too. Almost 9% of credit card debt was categorized as delinquent in Q1, 2024.

Another symptom: rising numbers of workers struggling paycheck to paycheck, turning to earned wage access apps to make it to payday.

In research released this month, CFPB estimates that in 2022, 7 million workers received $22 billion through apps that worked with their employers, and 3 million workers received $9.1 billion through direct-to-consumer apps.

Workers who use earned wage access took out on average 27 of these loans a year, roughly one loan for every biweekly paycheck.

Smart employers recognize the problem, worker cash-flow gaps in what the Aspen Institute calls a broken system of jobs and benefits, and are exploring our role in bridging the gap.

Debt, employee financial stress: bad for business and impact

Why? Because we know employee financial stress is bad for business and impact, health and happiness.

We know workers increasingly rely on earned wage access apps and other financial products whose APY can exceed 100%, to make it to payday.

And we know this isn’t sustainable, regardless of whether we feel EWA is a loan and should be subject to the Truth in Lending Act, which requires lenders to disclose all loan costs and fees (share your opinion on EWA with CFPB through August).

“Within the marketplace of short-term cash flow products, many aim to help workers maintain financial stability,” says Justine Zinkin, CEO, Neighborhood Trust Financial Partners. “Yet numerous products exist which trap workers in debt cycles that intensify their financial strain, and harm their long-term financial health.”

Employers who support workers in breaking out of this cycle of debt will win the future. Sure, but how?

Personal financial coaching, tackling debt from all sides

TrustPlus personal financial coaching is one way Neighborhood Trust helps employers help workers avoid or escape the toxic cycle of debt on their road to freedom from debt.

Tackling Debt from All Sides, Neighborhood Trust’s summer 2024 insights update, offers a window into TrustPlus personal financial coaching through our clients Whitney and Luz.

With their personal financial coach’s support, they swap harmful debt products for healthier options that smooth their cash flow and support their long-term financial goals.

It also surfaces insights about three high-risk financial products that drag on worker financial health and in turn on organizational performance: retail store credit cards, cash advance apps, and buy now, pay later apps, which market to the growing numbers of workers who struggle to make it paycheck to paycheck.

Smart employers are taking note.

Escaping credit card debt

Escaping credit card debt is often a key step for TrustPlus clients on their road to financial health.

If investing in the financial health of your workers with TrustPlus is off the table for the moment, then sharing resources to help your workers escape toxic debt can be the next best thing.

With this in mind, we share Tips for Paying Off Credit Card Debt. Consider sharing them with your workers in a context that makes sense for your organization. Your people and your bottom line, in profits and impact, will be stronger for it.

Tips for paying off credit card debt

Negotiate with your credit card company

Shhh…Creditors are often willing to accept a lower amount if they know you’re unlikely to be able to pay it all, at least not in a timeframe that’s relevant to humans in 2024.

If this sounds like you, call your credit card companies. Tell them your financial situation and propose a lump sum payment that is less than the total balance owed.

Demonstrate your genuine willingness to repay what you can by providing documentation of your finances. They may be willing to settle your accounts for a portion of the original balance.

You must ask to find out.

Choose a credit card debt repayment strategy

If you have enough money to pay more than the minimum amount on your credit cards, debt repayment strategies like the debt avalanche or snowball methods may be right for you.

With the debt avalanche method, you make extra payments to your card with the highest interest rate while making the minimum payments on your other balances. This has the advantage of reducing your most expensive debt, first.

With the debt snowball method, you pay extra money towards your smallest balance while making the minimum payments on your other cards. This has the psychological benefit of paying off a card, and building momentum toward freedom from debt, typically sooner than with the debt avalanche method.

Are you the type of person who values quick wins to motivate you to continue paying down debt? If so, the debt snowball method may be the best solution for you.

Consolidate to save big

Imagine consolidating your high-interest credit card balances into a single, lower-interest loan. It’s like merging multiple subscriptions into one streamlined service. Options abound: a debt consolidation loan or transferring balances to a 0% APR credit card, if your credit score enables it, to name two.

You’ll not only simplify your payments but also potentially save time and thousands of dollars on interest.

Explore a Debt Management Program

Debt Management Programs can lower your interest rates, waive pesky fees, and tweak your payment terms to something more manageable. In return, you can direct more of your hard-earned cash towards reducing the principal instead of padding your creditors’ pockets with high interest payments.

It’s like getting a discount on your debt — a real win-win if you stick to the plan.

But note the difference between Debt Management Programs and Debt Settlement Programs. Debt settlement should be a last resort.

If you feel that debt settlement is your best option, then refer to this amazing resource from TrustPlus Senior Personal Financial Coach Dametria Douglas and Financial Coach Shanick Yermenos.

They share 11 debt settlement tips and roleplay how to negotiate with a debt collector.

In a nutshell

Whatever path you choose, remember reducing your credit card debt is a marathon, not a sprint.

Build a realistic budget, trim unnecessary expenses, and decide on your strategy.

With a bit of perseverance, you’ll be saying goodbye to debt and hello to financial freedom.

Schedule a time with TrustPlus to discuss reducing credit card debt among your workers and capturing the benefits of a financially healthy workforce.