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Debt the Halls: how banks can help customers manage Christmas debt

By: David Webber, MD, Intelligent Environments

Christmas festivities are now over, but many people are still struggling with debt incurred from this busy shopping time. According to our research, going into debt over the Christmas period is unavoidable for many of us. Nearly one third (31 per cent) of consumers consider it essential to run into the red in order to have adequately funded festivities – not just because it is an undeniably expensive time for a majority of us, but also because peaks and troughs of spending throughout the year can be challenging to manage.

What’s more, over a quarter (26 per cent) will have missed at least one debt repayment and incurred a late fee as a result. Christmas can be a stressful time as it is, and being in debt can significantly compound that strain – our research found that half (50 per cent) of consumers have said that going into debt is one of the biggest causes of stress at Christmas.

This reliance on credit to fund major events or times of the year such as Christmas may have contributed to a rise in zero per cent borrowing routes opted for by many banking customers, which can spell trouble. A recent report by the Fairbanking Foundation found that 41 per cent of people who opted for zero per cent cards for purchases failed to clear all their debt at the end of the period, while 45 per cent who took out cards to transfer balances failed to clear the debts. The rise in zero per cent borrowing highlights the perils of using balance transfers to help clear debt.

So, what should banks be doing to help tackle debt and enable customers to better manage their spending?

Our research also indicates that managing finances digitally is a good way to relieve the stress. 59 per cent of consumers state they would prefer to manage their finances online and 54 per cent of consumers say they would repay larger amounts of their debt if their bank provided them with a financial management tool that was linked to their bank account.

The Bank of America agrees that digital solutions can make all the difference: the bank’s Trends in Consumer Mobility Report has highlighted that with 36 per cent of Americans checking their smartphones “constantly”, there is a great opportunity for mobile banking solutions to help the consumer. The banks sends over 1.5 million alerts a day to customers which include information on low account balances and upcoming payment due dates to give their customers greater visibility, and therefore control. Head of Digital Banking Michelle Moore concurs that “during the rush of the holiday season, mobile banking makes it convenient for consumers to stay on top of their finances and manage their spending on the go with alerts about their accounts.”

Enabling consumers to manage their finances digitally will undoubtedly give them greater control over debt, especially given the convenience and visibility afforded by mobile solutions. Our research indicates that the high proportion of people expecting to go into debt this Christmas could be dramatically reduced if banking customers were given advice, training and access to money management tools.

In light of this, and following a financially challenging festive season, here at Intelligent Environments we are now calling for more banks to give their customers easier access to digital budgeting tools. Making money management easier throughout the year could make peak spending times such as Christmas more manageable. It has the potential to help prevent people going in to debt, and help those that do deal with it more effectively.

Regulated by the FCA, banks are required to put customers first as part of their business strategy. This means that if evidence shows that customers need assistance with personal financial management, banks should strive to provide it. In an increasingly digital world, banks need to ensure their customers have access to the tools they need to manage their money in a quick, easy and stress-free way.

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