Findings from a National Foundation for Credit Counseling online poll reveal that close to one-in-five consumers believe carrying debt from month-to-month is a responsible way to manage their finances, but a mortgage is not what they have in mind.
NFCC’s July Financial Literacy Opinion Index shows 18% of the 1,630 individuals in the sample who participated in the online survey from July 1-31, and after witnessing the most severe economic crisis since the great depression, a relatively high number of borrowers are not thinking of saving for a mortgage.
Findings suggest “many Americans are using credit cards to fund a lifestyle their income can’t support,” said NFCC spokesperson Gail Cunningham, but what is worse, “they are comfortable doing so.”
In retrospect this mentality reiterates the continuous need for financial education and counseling alongside industry efforts to evaluate and manage customer credit risk, which remains key to lending and loss mitigation. As shown by a recent TransUnion study there is a close correlation between
At 61%, over half of respondents noted paying credit card debt in full each month is the only responsible way to manage personal finances, 18% still believe “carrying credit card debt over from month-to-month is a fact of life and is a responsible way” to manage finances, and appear clueless to the fact that carrying a large balance means incurring fees and has the potential to negatively impact a person’s debt-to-credit ratio, one of the main components of credit scores.
Another 21% do not use credit cards, a money management approach that also has some pitfalls since cash and debit card transactions usually are not reported to the credit bureaus and may become a problem when people need credit for major purchases such as a house, credit may be denied.
Many consumers still are not aware of the consequences associated with continually carrying credit card debt from month-to-month, or not having credit history, compared to timely bill payments and low credit utilization ratios that typically have a positive impact on an individual’s credit scores.
One way banks are dealing with borrower credit issues is by helping them manage their finances through new savings products. Earlier this month TD Bank started offering consumers new savings options and created a Savings Selector tool consumers can use to determine the type of savings account best suits their needs.
Having the ability “to start saving without a large initial investment,” was what customers requested when asked by the bank what they wanted in savings choices, said TD Bank’s SVP of retail products, Lindsay Sacknoff, they asked for “tools to grow current savings and options to minimize costs."
TD Simple Savings is an entry-level savings product that enables customers to start saving, avoid monthly maintenance costs, and choose from money market and high-yield savings options that will “grow and maximize their savings.”
Users can avoid monthly maintenance costs during the first year by linking it to an eligible TD Bank checking account and establishing a monthly transfer of $25 or more.
The TD Growth Money Market option consists of savings through tiered interest rates and has the convenience of check writing, the bank said. Customers also can choose to receive a rate bump by linking it to a TD Bank Checking account from which they agree to transfer into savings $50 or more in a month.
The third option is TD Relationship Savings, which also features “tiered interest rates with higher rates” for customers who link an eligible TD Bank mortgage, home equity, credit card account or active checking account to their savings account. To qualify, the account must have one deposit, withdrawal, payment or transfer transaction during the previous calendar month.
These new savings options were designed to offer “more choices that meet the diverse needs of consumers," Sacknoff said.
