Borrowers are maxed out as debts pile up

Americans are swimming in debt. And many are drowning in it. The average household debt at the end 2023 was $104,215, including mortgage and home equity loans, credit card debt, student loan debt, and other debts like personal loans.¹ The average credit card balance per consumer was $6,218 in the first quarter of 2024, a 10 percent year over year increase.²

With so much debt and so many obligations, consumers are increasingly falling behind on their payments and default often follows. According to TransUnion, nearly 4 percent of personal loan borrowers were late on their loan payments by 60 days or more in the fourth quarter 2023.

Reasons for default

There are myriad reasons consumers default on their loans, usually due to no fault of their own. With most Americans living paycheck to paycheck, there is little margin for error. One missed paycheck or a sudden illness can send borrowers into default. A recent 2024 survey by Securian Financial found the main reasons for default are:

• Reduction in income – 43%
• Unexpected job loss – 33%
• Unexpected expense (car or home repair) – 29%
• Medical issues/disability costs – 24%
• Divorce or separation – 17%
• Spouse lost job or had income reduced – 13%
• Could not afford increase in interest rates – 13%
• Mental health issues – 12%

Payment protection can help you and your members

These hardships and resulting defaults also impact lenders. In return, lenders are becoming more discerning when providing loans and credit cards and are using stronger underwriting guidelines.³ But that is far from ideal.

Another option to reduce defaults is to offer payment protection to borrowers. Payment protection, also known as debt protection or credit insurance, reduces or pays off a loan balance or makes monthly payments if something unexpected happens, such as involuntary job loss, disability, or death. This insurance can be offered with a loan or credit card.

Not only does this protect lenders from defaults and improve their financial well-being, but it can also generate non-interest income to your bottom line. Securian Financial has the right products and solutions to help your members.

Disclosure:

1) Experian, Chris Horymski, January 22, 2024.

2) TransUnion, February 8, 2024.

3) TransUnion, February 8, 2024.

All data cited from Securian Financial 2024 credit Survey.

Payment protection refers to our suite of products that support lending solutions sold through financial institutions. These products include debt protection and credit insurance. Debt protection is a contractual liability policy issued to the credit union by Securian Casualty Company, a New York authorized insurer. Minnesota Life Insurance Company acts as the administrator of the credit union’s debt protection program. The credit union is independently owned and is not affiliated with Securian Financial. Insurance products are issued by Minnesota Life Insurance Company or Securian Life Insurance Company, a New York authorized insurer. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Both companies are headquartered in St. Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. Securian Financial is the marketing name for Securian Financial Group, Inc., and its subsidiaries. Minnesota Life Insurance Company and Securian Casualty Company are subsidiaries of Securian Financial Group, Inc