Interest rates are up. Personal credit is exploding. In this environment of rising debt, there are pitfalls to be sure – but also new opportunities for credit unions. As the conversation around credit card interest rates picks up, competition based on rates and terms may once again come to the fore.
The stakes are high for a great majority of members. With average personal debt levels among older millennials and Gen Xers hovering around $40,000, rising interest rates present a significant challenge – impacting not only your members’ monthly budget but also their ability to afford a home (or even a car) and pay for major life expenses such as weddings or moving to a new home. Personal loans may be seeing a resurgence, signaling new interest in different kinds of lending products as a way to manage debt.
These five stories paint a picture of the new challenges facing debt-carrying consumers, and highlight why credit unions may have an opening to offer better solutions to an alternative-starved market. Time to put our thinking caps on.
Rate Hikes Hint at Tough Grappling with Card Debt
How will rising interest rates affect members who carry credit card debt? According to CNBC, rates are eyeing (though still not hitting) record highs – crossing the 17 percent mark, compared to 16.1 percent last year and 15.2 percent the year before. After years of historically low rates, credit card issuers may find themselves competing on rates once again.
Predictable Credit Card Rates: Fuggedaboutit
Bankrate reports that fixed-rate credit cards are quickly becoming an endangered species as the Fed continues to raise interest rates. Most cards are now pegged to the prime rate, in order to protect card issuers in a volatile rate environment. Some say credit unions should include a fixed-rate product in their credit card portfolios as a point of differentiation. We’ll see how this story unfolds.
Here’s How Much Members of Generation X Have Racked up in Debt
While it’s true that older millennials (ages 25 to 34) have accumulated, on average, an impressive $42,000 in personal debt excluding home mortgages, Gen Xers aren’t far behind. According to Northwestern Mutual’s 2018 Planning and Progress Study, the average personal debt load for 35 to 49-year olds is still a whopping $39,000. Especially as interest rates rise, consumers of every age may find themselves looking for alternatives.
Young Adults Turn to Personal Loans for Debt, Weddings and Moving Expenses
Is this the re-emergence of a classic credit union lending product? Young adults are confronting potentially crippling levels of personal debt. Now, it seems that more and more are using personal loans as an alternative to credit cards – or to pay off high levels of credit card debt.
Square Is Bankrolling Merchants to Let Them Extend Credit
Fintech innovator, Square, announced the launch of a new consumer-side lending service. With Square Installments, Square will offer credit between $250 and $10,000 to the customers of merchants that use its technology for payments along with fixed repayment schedules.
As rising debt and credit card interest rates impact your members, THINK ahead! Register now for THINK 19 – May 6 to 9 in Miami – and join the nation’s most forward-thinking credit union leaders as we uncover the opportunities and challenging facing our movement today. Early-bird pricing ends October 31: