As of today, consumer credit trends are one of the most essential elements that businesses need to be familiar with. Why? Because that’s one of the key factors that will determine delinquency percentages, and also determine how businesses can handle debt collection effectively.
This is especially applicable to professional credit collection services, as businesses would eventually resort to them for bad debt recovery. Let’s explore this article till the end to find out the evolving consumer credit trends, and how can it impact debt collection practices.
The Substantial Rise In Credit Card Usage
One of the greatest consumer credit trends happens to be the substantial rise in credit card usage! As of 2023, around 82% of the U.S adult population had credit cards according to reports published by CNN Underscored Money. However, this percentage varied widely with demographics.
For instance, older adults had higher chances of having credit cards than younger adults. Similarly, families with an average income of $25,000 and above had one or two members using credit cards extensively.
An exemplary instance of the substantial rise in credit card usage would be the total percentage of payments covered by credit cards! What started from a mere 18% back in 2016, jumped to a whopping 31% in 2022, and again increased to 32% in 2023.
As for any credit collection services company, this data alone is enough to come up with strategies to cope with challenges that are most likely to occur with more credit card usage. It’s a simple math- the more customers pay with their cards, the higher the chances of delinquency!
Buy Now Pay Later (BNPL)- The Reason Behind ‘Phantom Debt’
Customers nowadays have an array of financial products that they are using for payments/ purchases. The ‘Buy Now Pay Later’ (BNPL) option is just one of those products whose corresponding delinquencies contribute to an increase in consumer debt percentages.
How? Well, in 2023, the BNPL option encouraged more consumers to have purchase power, even after significant interest rates. Although this was a great option for the consumers, it can get a little complicated for credit collection services to recover delinquencies in such situations. BNPL doesn’t necessarily show up on credit reports, and hence, can become a debt burden for businesses in the wink of an eye! And that’s one of the main reasons why such kinds of debts are referred to as ‘Phantom Debts,’ which translates to a type of debt that has grown old or has been defaulted by the debtor, or is not at all owed, but is still being pursued for collection.
So, what’s the reason behind it?
Well, there are a variety of Buy Now Pay Later options that are offered. Hence, a consumer has the independence to borrow from different lenders at the same time. But, the issue with this system is that consumers are most likely to lose track of payments they owe, resulting in delinquency.
Lower Student Loan Repayment Ratio
As soon as the student loan repayments have resumed, causing hardship in the lives of millions among the U.S population! The main reason behind that is that people who opted for the loan used the forbearance period to pay off their mortgage/ credit card bills. And now when the repayment tenure has begun, they are facing severe challenges to maintain numerous financial obligations.
In fact, a large number of student loan applicants have already missed their first repayment, which is an indication of the potential hardships that they are facing while repaying. What’s more shocking is, that this cycle is most likely to continue, which will eventually affect both- the borrower and the lender parties.
The Solution? A Personalized Approach
The advent of newer consumer credit trends has increased the sales volumes of businesses. At the same time, it has also brought about heavy delinquency rates which, very ironically, impacts the cash flow of those businesses only!
That’s the reason why professional credit collection agencies plan to take a personalized approach to maximize bad debt recovery. Also, they consider establishing contact with the debtor party through their preferred digital channels (text messages, e-mails, to make sure to deliver a top-notch customer experience, which is crucial for the long-term success of any debt recovery agency operating in today’s competitive market.
Added to that, these professional agencies also offer multiple payment options to the debtor party. This makes the latter feel obligated, rather than pressurized, and therefore, increases the chances of successful debt recovery significantly.
That’s not all! Being professionals in this field, the recovery experts abide by every regulation set by the FDCPA and always contact the customer at a convenient time, or send friendly reminders to ensure that all communication remains transparent and fair.
That’s the reason why it’s always preferable to approach only the best commercial collection agencies in Houston like Nelson Cooper & Ortiz, LLC to ensure successful debt recovery!
Summary: Read the article to explore the impact of consumer credit trends on debt collection, and how are collection agencies planning to tackle such situations optimally.
