Consumer debt is on the rise: What businesses need to know

As consumer debt levels reach unprecedented heights, businesses must adapt to ensure the financial stability of their business and their customers. Data from TransUnion reveals trends in consumer delinquency, credit, loans, and bills that businesses need to be aware of and navigate. The financial implications for your business are important. But in today’s blog, we’ll dive into the opportunity that these trends present to enhance your relationship with your customers and help them manage their financial risk as this can be the difference between maintaining them for a short while, or for life. Let’s dive into what you need to know and some easy ways that you can support your customers starting today. 

The current situation

Consumer debt has surged across multiple categories, with credit card and unsecured personal loan balances reaching record levels. In Q3 2023, total credit card balances reached $995 billion, a 15% year-over-year increase. Additionally, unsecured personal loan balances grew to $241 billion, marking another increase of nearly 15% year-over-year. 

The rise in debt is accompanied by an increase in delinquencies as consumers are forced to prioritize. Credit card delinquency rates (90+ days past due) were at 2.59% in Q4 2023, which is the highest in a decade. Similarly, unsecured personal loan delinquencies have remained high, though TransUnion did see a slight improvement from previous quarters. 

What businesses can do today 

For businesses, these trends signal potential challenges in consumer spending and repayment behavior. However, with strategic adjustments to how, what and when you communicate, businesses can mitigate risks and maintain customer loyalty. 

Offering financial education:

Educating consumers about managing their debt and improving credit scores can lead to better repayment behaviors. In fact, we see that customers who have fallen behind will engage more with businesses in search of this support. Providing resources aids businesses in creating stronger customer relationships and reduces the risk of delinquencies. 

Flexible repayment plans:

Offering flexible repayment options can help consumers manage their debt more effectively. In fact, Symend’s research found that 59% of those who have fallen behind are looking for flexible payment options. Consider providing structured payment plans or temporary relief options to help customers get back on track. 

Monitoring economic indicators:

Staying informed about economic trends and interest rate changes is table stakes today. The seen and anticipated future interest rate cuts in 2024 could provide opportunities for refinancing high-cost debts, which businesses can leverage to offer competitive loan products. 

Strengthening customer relationships:

Retaining existing customers should be a priority, especially as competition increases. Implementing loyalty programs and offering personalized financial products can help maintain customer engagement and foster increased customer lifetime value (CLV).

Staying proactive 

With the above tools in your kit to support your customers as they navigate their financial obligations, it’s also important to look at proactive ways to help them proactively manage rising debt. This also can serve as an opportunity to deliver greater value to your customers, and your business. 

• Data-driven decision making: Use consumer data to understand patterns, probability and behaviors that indicate that a customer needs some more support. This approach can help in the early identification of at-risk accounts and enable you to effectively communicate to encourage them to take necessary steps. 
• Cross-selling low-risk products: Promote products that pose lower financial risk to consumers, such as secured loans or low-interest credit options. This not only aids consumers in managing their debt but also ensures a steady revenue stream for businesses. 
• Offer extra services: Offer customers personalized financial planning services either through your business and team, or through a partnership with financial advisors. This collaboration demonstrates your investment and therefore your long-term commitment to your customers. It can also set them up for a lifetime of value to your business as they learn for themselves and share their experiences with their network. 

Conclusion 

As consumer debt levels continue to rise, businesses must adapt their strategies to manage potential risks and maintain customer relationships. By enhancing credit assessments, offering financial education, providing flexible repayment options, and leveraging economic trends, businesses can navigate the complexities of rising consumer debt and ensure long-term stability.