What Role Do Startups Play in Fixing Consumer Debt? Essentials You Need to Know!

There was once a time when economy used to be more straightforward. Financial shortcomings were not non-existent, and debts were manageable with pocket-friendly interest rates and considerable repayment time. It allowed people to live their life on their own terms without having to worry about debt payments continually. Since then, much time has passed, and economic crises have become more frequent. Loans are unavoidable and paying them off without emptying one’s savings is almost impossible. In fact, consumer debt remains one of the most significant challenges that today’s world is facing.

Household expenses have increased alarmingly over the last few years, leading to consumer debts:

With America’s total credit card debt continuing to rise at an alarming rate in 2017, financial analysts are saying that an average household that is trying to pay off a loan has a balance of $15,000. In fact, there has been almost 8% increase in credit card debts in 2017 as compared to last year. A recent study has found that on an average, households with debts owe around $130,000 to their loan providers.

It is indeed a matter of grave concern if the average households have to pay a considerable amount, which is almost equal to more than 8% of the entire household’s income, as debt interests. It is to be noted here that one of the main reasons that consumer debts have gone through the roof in recent years is because the cost of living has skyrocketed at an astounding rate. While most households are trying to increase their income every year, the expenses far outweigh the earning in most cases. Moreover, there has been a 50% increase in medical costs, and food and beverage costs have also increased by more than 35% in recent times. All these have happened in the same time frame, burdening people with more expenses for necessary provisions.

The situation is so terrible that at this stage, medical bills are the most prominent cause of bankruptcy in the United States of America. It is quite sad to know that some Americans are under so much financial pressure that they might not be equipped enough to tackle an emergency of a few hundred dollars.

In this bleak situation, some startups are providing people with the ray of hope. Skeptics may say that tech companies are looking for opportunities to profit from this unfortunate financial condition. However, that is not the case! These companies are genuinely trying to help individuals pay off their loans in a systematic manner and are building solutions to address them.

What are the types of loans that these startups are focusing on?

Mortgages – Mortgages top the consumer debt category, and some startups are leveraging consumer data to assess their creditworthiness as well as improve underwriting accuracy. They also offer better rates, lower borrowing costs and even offer extra credit options to qualified buyers.

Medical bills – As mentioned earlier, medical bills are the most significant reason for bankruptcy in the USA. Startups are now connecting error detection algorithms with a network of medical billing specialists to eliminate medical billing errors and overcharges, helping families to save significantly. These solutions can even scan past medical records and detect errors or inaccuracies, and also arrange for reimbursements.

Credit card debt– New companies are giving personal loans at lower interest rates to individuals based on their past and future earning potential. This potential does not depend on factors that impact credit score such as education, hobbies and so on.

Student loans– Some startups are helping students refinance as well as consolidate their loans. They also assist students in chalking out a monthly payment plan that would be in line with their career trajectory.

What is the next batch of startups going to do to address the situation?

While some startups have done a fantastic job in laying the foundation of the solutions that will potentially fix the consumer debt issue, experts think that this is just the beginning. More and more businesses will enter the space, and the next wave of startups will bring in even more user-centric convenience. They will primarily focus on helping individuals be on top of their debt obligation management process. These new solutions will also help one to scale and reshape their lifestyle to avoid getting into an unfavorable financial situation. From doing away with unnecessary subscriptions on credit cards to scaling down the expenditure on a daily or monthly basis – the possibilities are endless for these solutions. How will they do it? Well, with the help of Artificial Intelligence (AI), of course. AI-based solutions can scan invoices and receipts to stay updated about day to day expenses, provide the users with real-time information about their financial condition, optimize payments to ensure that no debt is ever missed and so much more.

Future income streams will play a critical role in managing debts:

One of the main reasons so many people have to put up with debt-related issues is that the interest on the loan builds up faster than you can repay the sum. Even if it may sound idealistic, one must consider that they can use their future income to reduce their current debt. This would solve quite a bit of the problem. Again, there would be cynics who would say that there have been suggestions of this before, so what guarantee is there that this would work this time? In reply, it can be said that this time, the sheer wealth of data can enable AI to accomplish what was previously unachievable. From a predictive analysis of finances to prescriptive suggestions of expenses, savings, and payments, AI can render debt management much more comfortable.

In conclusion, it can be safely stated that technology has empowered individuals with detailed knowledge and better control of their finances, and it has also made it easier to handle debts. The financial management industry has seen newer efficiencies with new products. As startups make collective effort to tackle the issues related to consumer debt, much support needs to be extended to the new entrepreneurs who are just starting out in this sector. Upon success, they can successfully alleviate some of the most significant stress-inducting factors from today’s economy.

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