The Fintech Solutions for Managing Debt

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The Fintech Solutions for Managing Debt

Debt can be a slippery slope. If you aren’t proactive about repayments, your outstanding debts could keep growing. And the bigger your outstanding debts grow, the harder it will be to tackle them. If you let those debts grow too out of control, you might struggle to keep up with payments and get hit with late fees and other penalties. As things escalate, you could max out accounts, default on loans and go into debt collection. 

You don’t have to slide down this slippery slope. The right fintech solutions will help you manage your debt repayments and avoid tumbling down into debt trouble all over again.  

Budgeting Apps

Are you living without a budget? Living without a budget will make it much easier for you to spend beyond your means and stumble into debt. With a sensible budget, you can set clear spending guidelines that match your monthly income and your needs. 

A sensible budget will also help you execute debt repayment plans more effectively. Say that you applied for a personal loan to cover an emergency expense. You used the loan to resolve the emergency, and now you have to face the next step of the borrowing process: repayment. One of the best tips to manage your loan in this situation is to use a personal budget. Add the new expense category (loan repayment) to your guidelines. If this new category pushes you over your monthly spending limit, adjust other variable expenses so that you can comfortably afford it. Stick with this updated budget and your repayments should go smoothly.

If you’re going to build a budget, you should use a budgeting app to do so. Why? Many budgeting apps can sync with your various financial accounts, including your checking accounts, savings accounts, credit cards and loans. Syncing with these accounts will give you a clear view of your income, your savings and your debts. There’s no need for guesswork. You’ll have all of this information streamlined through a single app.

Syncing with your financial accounts also means that you will have real-time updates on your transactions. You will see exactly how much you’re spending and how closely you’re following the guidelines that you’ve set in your budget. If you notice that your transactions don’t match up with your budgeting categories, you’ll know that you need to make some changes — whether those changes are with your budget or your spending habits.

These are some budgeting apps to consider:

• YNAB (You Need a Budget)
• Mint
• Goodbudget
• EveryDollar
• PocketGuard
• Honeydue
• Simplifi
• Empower
• Wallet
• Zeta

A Budgeting Category You Shouldn’t Forget

When you’re building your budget, you’ll want to include a category for an emergency fund. This category should prevent you from taking on unnecessary debt in the future. 

Without an emergency fund, you might not have the savings to cover an urgent expense out of pocket. In that case, you’ll turn to a credit tool, like a personal loan or credit card to pay the expense off in a hurry. This will give you some relief, but it will also give you a responsibility to add to your to-do list. You will have to pay down this debt that you incurred.

An emergency fund can also help you handle major life upheavals, like being laid off from work. Considering how many economic experts are predicting the possibility of a recession in the next year, there is a possibility that you may be one of the many workers who loses their employment — or at the very least, has their work hours reduced. 

A substantial emergency fund can help you compensate for this sudden loss in income and smoothly transition into this different employment status. You don’t have to panic about being able to pay your bills for the upcoming weeks. You don’t have to take on debt that you can’t afford to repay. Your savings will help you recover in this tumultuous time.

Mobile Banking Apps

Your bank’s mobile app will likely come with features that will simplify your routine banking activities. You’ll be able to manage your money without having to travel to an ATM or local bank branch to cross these activities off your to-do list. You can do everything through your smartphone, wherever you’d like.

These are three common features of mobile banking apps that you could help with debt prevention and management:

1. Mobile Banking Alerts

Mobile banking apps allow users to set up alerts to inform them of certain activities with their accounts. One of these alerts is a “low balance alert,” which you can attach to your checking or savings account. If your account balance drops below a minimum threshold, you will automatically receive a text message or email about your low balance. 

Most apps will set the alert to trigger once your balance dips below $100. You can customize your account settings to change that to a higher or lower number. 

The account alert will warn you when your bank balances are running low and stop you from accidentally draining them. Without this alert, you could put your checking account into overdraft and get charged a series of overdraft fees and NSF fees. Or you could empty your emergency fund without realizing it. Doing this will make you vulnerable to any urgent expenses that come your way — which means you’ll likely take on debt to pay them off.

A “low balance alert” isn’t the only mobile banking alert you should set up. You should also use a “high balance alert” with your credit accounts. A high balance alert will notify you when you’ve exhausted most of your available credit and you’re in close proximity to the account’s limit. So, this will stop you from borrowing more than you can afford to repay by your next billing cycle. Without the alert, you could give yourself a very high debt load to pay down or even max out your account. 

2. Automated Payments

With a mobile banking app, you can easily set up automatic transfers between bank accounts. So, you can set up automatic transfers from your checking account into the savings account holding your emergency fund. This simple change will ensure that you’re making contributions and always building up the safety net. Without consistent contributions, your emergency fund might not have much inside of it when disaster strikes — which again, could push you into debt.

Arrange automated payments for your creditors, as well. Doing this will help you send bill payments on time, which means you will avoid late fees and other penalties. And it can make you more consistent with repayments for revolving credit tools like credit cards and lines of credit. Consistency with these types of credit accounts is important for minimizing the effects of compounding interest.

3. Savings Tools 

Some mobile banking apps offer customers special features designed to optimize savings. For instance, the online-only bank Ally Bank has a Surprise Savings feature on its mobile app. The feature will analyze the customer’s checking account to see whether there are any opportunities for savings. If the feature finds money to spare, it will automatically transfer that money into a savings account. 

Another example is Varo Bank’s Save Your Change feature. This feature will round up transactions from checking accounts to the dollar amount. The round-up’s remainder will be automatically transferred into a connected savings account. The contributions will be small but can make a difference to your savings over time. 

You can use these extra savings to pay down your outstanding debts or fill up your emergency fund.

Bill-Cutting Apps

The smaller your repayments are, the longer it will take to tackle your debts. For instance, if you’re only covering the “minimum payment” on your credit card bill, you’re only avoiding being charged a late fee from the credit card company. You’re not doing much to whittle down your balance. Your payment might not even counter your account’s compounding interest. 

If you want to whittle down these debts faster, you’ll need to make bigger repayments. And one thing that can help you afford bigger repayments is a bill-cutting app. Bill-cutting apps are convenient tools that will analyze your financial accounts and find recurring subscriptions that you can cancel for the sake of savings, like online streaming services that you don’t use anymore. 

Some apps will do more than find subscriptions to wipe from your future credit card bills. They will also contact your providers and negotiate lower rates so that you collect some savings. They can do this with providers for internet, cellphones and cable TV services. 

Once you get these extra savings, you put them toward your outstanding debts. The bigger your contributions, the faster you will be able to pay them down and make them much more manageable. 

These are some bill-cutting apps to consider:

• Rocket Money
• Trim
• BillCutterz 
• Billshark
• Hiatus

A few smartphone apps could be the ultimate solution for your debt problems. With their clever features, you can chip away at your current debts and take steps to make sure that you don’t slide down that slippery slope all over again. So, pull out your smartphone and start downloading!

The Fintech Solutions for Managing Debt
Brian Wallace

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