Moving America Forward

Can a Credit Card Actually Help Borrowers Escape Debt?

March 12, 2014
by
Menu
Can a Credit Card Actually Help Borrowers Escape Debt?
Joe Raedle/Getty Images
The Trust Card aims to help cardholders learn how to use credit responsibly.

Chances are, you’re well aware of the dark sides of a credit card: High interest charges, costly late fees, and difficult-to-understand disclosure statements. But for many low-income American families, credit cards are the only way that they can fund their life — using them to pay for food, transportation costs, and medical expenses. Before long, these expenditures (plus added interest charges) can balloon to several times their initial cost, leaving these people with a burden of debt that’s next-to-impossible to escape.

According to the Center for Responsible Lending, credit card debt in America has increased by $172 billion since 2000, now standing at a staggering $850 billion. Justine Zinkin, CEO of the non-profit Neighborhood Trust Financial Partners, doesn’t think it has to be this way. That’s why her organization launched the Trust Card, a credit card that helps users pay down their debt. “Once you are in debt, it’s hard to get out,” she told Pop!Tech.

Trust Card users must agree not only to consolidate all their credit-card debts onto the Trust Card, but also to not open any more high-interest credit cards. In exchange, they will receive consumer credit at a more reasonable interest rate than a typical credit card. Additionally, they will have the opportunity to meet with a Neighborhood Trust financial advisor to work out a payment plan. (Most agree to maintain their monthly payment, or even increase it, until their debt is eliminated.) Last year, the Trust Card began with 50 cardmembers. Thus far, all of them have met their payment obligations.

“Our goal is to launch enough cards in 2014 to confirm our hypothesis that when supported with financial counseling and fair alternatives, these cardholders can reduce or eliminate their credit-card debt, begin to build savings, and ultimately take advantage of other savings and credit programs offered by their banks,” says Zinkin.

While the credit card companies continue to reap huge profits — 5.4 percent compared with 1.2 percent for all commercial banks in 2012, according to the Federal Reserve — it’s good to know that someone is looking out for people who are struggling to free themselves from debt.

MORE: Here’s How An Ancient Banking Technique Can Help America’s Poor

Comments