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.
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Tag: Financial Services
Here’s How an Ancient Banking Technique Can Help America’s Poor
Have you ever heard of a money pool? Until now, we hadn’t either.
A money pool is a technique that people worldwide living in poverty (or close to it) have used for centuries to save for large expenses. Here’s the way it works: Each member of the pool contributes the same amount of cash each month. Then, they each take turns receiving the lump sum.
Francisco Cervera, a resident of Phoenix, saw the effectiveness of a money pool when funds were tight and he needed a computer for school. His mother saved for it by contributing to a money pool in San Diego that she ran (she was responsible for not only reminding people to pay, but collecting their contributions, too).
While money pools are a good idea since they provide access to savings for people who can’t use banks, Cervera thought they could be improved. So as an adult, he started eMoneyPool with his brother Luis. The online tool formalizes the money pool and provides guarantees for participants in case anyone misses a payment.
New users to eMoneyPool are limited to $100 contributions, and each savings group consists of five participants. The website verifies users’ identities, and even works to establish a credit history for them through their transactions — helping them work towards being able to use a more traditional financial institution in the future. “We are creating a bridge for our users to lending institutions, but we are doing it in a way that is comfortable and familiar to them, with money pools,” said Cervera told Pop! Tech.
“Saving money by yourself is a nice idea. But when you are living at the poverty level, everything is drawing on your cash,” said Cervera. “Money pools change the idea of saving because you are saving as a team…It changes the desire to save from a want to a need. People think, ‘Now I have to put that money away because the group is counting on me.'”
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