Consumer Debts

Startups are fresh companies founded by one or more entrepreneurs to seek, develop, and validate a scalable business. The prime focus of these companies is to develop unparalleled products or services, get them to market, and to grow beyond the founder.

Investing in startups may seem risky as they have no history and less profit than established companies to show. A 2014 Fortune’s article estimated that 90% of startups ultimately fail. However, a great management team, a unique business concept, and hard work create a good prospect for future investors. Some powerful names can be noted such as Ford Motors, Microsoft, Facebook, Apple, McDonald’s, Ant Financial, ByteDance, DiDi, Uber, Xiaomi, etc.

Today, startups are not only providing investors good opportunities to create wealth, but they are also playing an important role to help the economy to recover from consumer debt.

“A startup is a company working to solve a problem where the solution is not obvious and success is not guaranteed,”

NEIL BLUMENTHAL

How? Let’s put some light on it.

What is Called Consumer Debt?

Consumer debt is the amount of money you owe to a third party, or a business, or the government. It’s also popular as consumer credit.

A consumer like you can fall into debt by borrowing from a bank, a credit union, and the federal government.

Types of Consumer Debt

  • Revolving

Credit card debts are considered as revolving consumer debt as you need to pay off credit cards each month and again incur more debts.

  • Non-revolving

Fixed-payment loans are called non-revolving debt. This debt isn’t paid off each month. You may need to make monthly payments to get out of these debts. 

You have the option to select between fixed interest rate loans or variable interest rate loans. Most non-revolving debt is auto loans or school loans.

Today the American economy is suffering from a big challenge named Consumer debt.

The average household carries $137,063 in debt. The average American has about $38,000 in personal debt, excluding mortgages. In May 2019, U.S. consumer debt rose from 5% to $4.09 trillion.

Of this, $3.016 trillion was non-revolving consumer debt. Most of these non-revolving debt belong to auto loan and education loan. As per the data received in March 2019, school debt reached $1.598 trillion mark and auto loans were at $1.161 trillion.

Credit card debt has increased by 8.2% and reached $1.072 trillion.

Why America has so much Consumer Debt?

Consumer debt has skyrocketed due to the following reasons:

  • Credit card debt was increased due to the Bankruptcy Protection Act of 2005.
  • The cost of living has increased more than income growth over the past 12 years.
  • Auto loans have increased due to low-interest rates.
  • Student loans increased during the recession as unemployed started to improve their skills.

To fight with this situation, few tech companies and investors funded several startup solutions. Here are some of them which are helping Americans to get out of debt.

1. Credit card debt – Lending Club

The average household has $15,310 in credit card debt. Lending Club brought an amazing change in the US consumer lending market that has revolutionized the common lending mindset.

Lending Club provides personal loans considering a person’s future income potential (factors apart from credit score, such as education, hobbies, lifestyle, etc.). Using that loan a.k.a debt consolidation loan, consumers can consolidate all credit card debts into one loan. They also help the common borrower by lowering the interest rate an average of 32%.

2. Mortgage – SoFi

Mortgages are the highest consumer debt, having a staggering $8.25 trillion as consumer debt. SoFi started its business to help students who are facing student loan problems with a very simple method. They believe an individual’s educational background is highly correlated with their creditworthiness over time.

SoFi gradually became the leader in the mortgage industry. They’ve also started to use the consumer data as their prime resource to improve underwriting accuracy and lower total borrowing costs. They offer a better rate, as well as provide additional credit options to “qualified” buyers.

They offer mortgages up to $3 million for buyers who can pay at least 10% down without asking for private mortgage insurance.

3. Student loans – Earnest

The Economist reported in June 2014 that U.S. student loan debt exceeded $1.2 trillion with over 7 million debtors in default. It is the second highest of any consumer debt category. The average outstanding student loan balance is $37,172 which they might end up carrying till they are into their thirties. Earnest provides students to refinance and consolidate their student loans, and to plan a monthly payment plan which may suit their career trajectory.

Till date, Earnest has saved an average of $17,936 to their clients. The best thing is they don’t consider credit scores in their underwriting process.

4. Medical bills – Remedy

An estimated 530,000 families turn to bankruptcy each year because of medical issues and bills. That’s why medical bills were the biggest cause of U.S. bankruptcies, according to a CNBC report. The research also revealed that patients pay $120 billion each year as a result of wrongly charged medical billing errors.

Practically, consumers are carrying the burden of a broken medical billing industry.

Remedy has introduced a revolutionary technology platform that combines powerful error detection algorithms with a network of medical billing specialists. It can remove unnecessary medical errors and overcharges from your medical bills.

Remedy has effectively detected errors and overcharges on 70% of the reviewed bills. As a result, it has saved $1,000 per family on their medical bills within a year. Remedy even can check your last 12 months of claims and corrects errors, reviews prescriptions and provides automatic reimbursements for FSAs and HSAs.

5. Consumer Debt and Spending – Trim

Trim currently provides helping hand to consumers for analyzing unnecessary subscriptions on their credit card bills, so that they can reduce credit card debt easily. They also help consumers scale back on big “spending buckets” or find cheaper financing sources for paying off existing debts.

6. Some More Aspiring Startups

Let’s check out some new startups to watch out in 2019:

  • Possible Finance

Possible Finance is a credit-lending startup. It gives the option to get credit without submitting credit-health score. This money lending service allows individuals to get funds within a day. But the credit limit is only $500. Users who want to get more credit can opt for premium service, which needs proper verification and documentation.

  • Inamo

Inamo is a contactless payment solution for users who don’t like keeping their credit cards with them. The service will cost $24 and users will receive a half-inch SIM card that acts as a contactless credit card. 

You can keep the SIM in a rubber pouch and use through a smartwatch or smartphone. Inamo is already working in the USA and Australia.

  • Tributi

It focuses on filing income tax returns automatically. It’s a user-friendly service that works with just a few clicks. It is currently active in Colombia and is slowly working to expand to more countries.

Conclusion

Technology has made huge achievements in the form of increased efficiency to the financial services industry. But handling consumer debt is something bigger than managing personal finances. 

As consumers, people should support entrepreneurs who are constantly trying to ease up the thing with innovations. This way, consumers can alleviate one of the largest problems of the American economy, Consumer debts.

Aiden White is a financial writer who lives in Foster City, California. She started her financial journey in 2015 and has been associated with consolidatecreditcard.org for the last 10 months. Through her writing, she has inspired people to overcome their credit card debt problems and solved their personal finance based queries. Being a debt fighter in her personal life, her goal is to share innovative thoughts and knowledge in the debt communities

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