Opinion

The Secret Weapon in the Fight Against Debt: Debit

Health care and immigration may dominate the headlines (and for good reason), but one issue has wrecked more of America’s pocketbooks than any other: Debt. Our economy is swimming in it, as Americans struggle to pay off student loans and pay back credit card companies.

The empirical evidence is startling. According to Experian’s latest State of Credit report, the average American owns three credit cards, carrying a total balance of roughly $6,500. Seventy percent of Americans with credit card debt won’t be able to pay it off this year. Worse yet, more than 20 percent don’t even know whether they have credit card debt or not.

Unfortunately, credit card debt isn’t their only financial hurdle. College graduates have to cope with student loan debt that has surpassed $1.5 trillion in total. Nearly 45 million Americans find themselves in the student loan hole, climbing out of an average debt amount of $37,000. The larger the shovel, the better: Research suggests it takes four-year degree holders an average of 20 years to pay off their loans. That’s right: Two decades!

Where there is crisis, there is opportunity. Fortunately, there is also a secret weapon in the fight against debt: Debit. Debit allows Americans to “pay as they go” by requiring cash on hand for payment, which can itself curb overspending. Americans need to rethink the payment process, and adopt spending practices that provide a host of benefits, while also shielding them from thousands and thousands of dollars of debt.

Private label debit is an alternative payment solution that accomplishes all of the above. This form of debit refers to a merchant-branded card or mobile payment app that utilizes an automated clearing house (ACH) to directly debit consumer checking accounts. (Think of it like an electronic check.) What consumers don’t have in those checking accounts, they can’t spend at their favorite stores. Merchants such as Target and Kroger have already adopted private label debit programs that offer brand-specific rewards, while avoiding the costly “swipe fees” associated with credit card transactions.

As merchants seek to cut costs, the market for private label debit transactions has ballooned in recent years. According to the Mercator Advisory Group, that market grew to $13.9 billion in processed volume last year, equating to a quarter-billion transactions. While private label debit is not yet mainstream, it is here to stay — and growing rapidly.

Cost-conscious Americans are increasingly relying on debit to avoid credit card debt, and the Millennial generation is leading the way. The growth for debit card usage outpaces that for credit cards within the Millennial age group, and Millennials make up 30 percent of the purchasing public. Across all age groups, debit cards account for roughly two-thirds of all U.S. card payments by number.

Although credit card usage can increase a consumer’s credit score, it can also become a significant detriment if that consumer misses multiple payments or only reaches the “minimum payment” threshold. Alternative payment solutions like private label debit combine the best of both worlds, ensuring secure, hassle-free payments while still allowing customers to accumulate rewards over time. Target’s REDCard, for example, guarantees 5 percent cash back on purchases — beating out a typical credit card. Kroger’s REWARDS Debit Card, meanwhile, offers 50 percent more on Fuel Points rewards and 2 percent off certain store brands.

This is particularly rewarding to consumers who are loyal to certain brands, and seek out incentives to buy from those merchants alone. Now, Americans can reap the benefits of brand loyalty and stay on top of their finances using debit payments. 

After all, the most surefire way to tackle credit card debt is to rein in spending. Debt tends to accumulate when credit card spending spirals out of control. Remember the old adage: “Don’t spend what you don’t have.”

Debit has allowed Americans to do that for decades. However, only now does the fiscal responsibility associated with debit come with the cash incentives of credit. In America’s fight against debt, private label debit may just be that silver bullet. 

 

Kristen Bailey serves as Chief Marketing Officer at ZipLine, a mobile payment and rewards provider in Portland, Maine.

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