Apart from two recessions and the economic impact of a global pandemic, consumer debt has increased steadily over time, with minor drops in 2020. Collectively, Americans owe 10% of their disposable income to non-mortgage debts like car loans, credit card accounts and student or personal loans. In 2008, US consumer debt was 115% of after-tax income. Now that figure is 85%.
The 2008 market crash devastated millions of people, including self-employed painter John Emond. “I had very bad credit due to my painting business slowing down when the economy went south,” Emond said. “I needed to do something.”
Business challenges, like Emond’s, job loss, and other ‘life events’ can result in the kind of financial stress that ultimately takes a toll on your credit score. Millions are driven to use credit cards to cover everyday expenses like groceries and electricity bills, skip payments, or take out high interest rate payday loans.
In addition, debt is detrimental to mental and physical health. Debt related stress leads to increased levels of depression and anxiety. Sometimes entrepreneurs like Emond – who work so hard to make their own way – find failure to be an emotional failing.
Researchers at Northwestern University even found that high debt levels increase blood pressure, heart disease, and increase the risk of stroke by nearly 20%.
Often this stress is tied to a sense of worthlessness. Debt makes people feel incapable of managing life, which is why when Emond discovered Self, he was given more than a financial lifeline. It is a platform helps customers build credit and save money.
“They let me keep my dignity,” Emond said.
Debt Doesn’t Make You A Bad Person
After the War of 1812, people who had fallen victim to the economic hardships that followed the conflict and were in debt – particularly poor and vulnerable populations – were actually jailed in debtors’ prisons. Even though imprisonment of debtors was eliminated in 1883, classism and racism created an opening for people with debt burdens to be labeled as weak, irresponsible, and illiterate. We are imprisoned by these same stereotypes today.
Brett Billick, CMO of Self Financial—a company that converts money paid into savings accounts into loans, says “Unlike a traditional loan, the loan [payments] are held in a bank account and you don’t get the money until the end,” Billick said. “Then the money inside unlocks and is yours.”
Billick said the market is massive for people looking to establish or reestablish good credit. He cites an Experian study showing almost 35% of people with a credit history are considered subprime, with a score between 580 and 669.
Self has over 500,000 users actively building and repairing their credit. The FinTech company also has launched the Self Visa credit card, a secured credit card that doesn’t require a credit check.
“There’s a lot of room for improvement when it comes to credit in this country, which means there’s a large market for our type of product,” Billick said.
For Emond, Self was a financial lifeline. “I figured I’d try, but to be honest I didn’t have much hope. I figured like other options it wouldn’t amount to much.”
Beyond overcoming some of the financial aches of bad credit, using Self gave Emond something more than just money in his wallet. Constant calls from debt collectors, and the feeling of having your back to a wall when it comes to finances can shake even the best of us to the core.
How it works
Users deposit money into a Self account each month for a year toward a loan. Self lets you take loans out against that money with manageable payments and lower interest rates than most secured credit cards. Self then reports your payment history to all three major credit bureaus, helping you to increase your score.
“It raised my score by 90 points!” Emond said. “And, almost all the money I put in I get back!”
Just about everyone can use Self. Billick said their smallest account option requires only a $25 monthly payment.
Also, Self has a new product that helps its users maximize the positive impact of their service. The Self Secured Visa Card, unlike other secured credit cards, takes $100 of your savings progress and transfers it to a usable credit card.
What’s more, the card doesn’t require a credit check, and doesn’t require users to apply for it. Once you’ve made payments of up to $100, you can simply claim it as your own, and start building credit through another channel.
Self then reports payments to the credit card to the three major credit bureaus, which means with one service you’re receiving positive credit reporting from two products. This positions Self as one of the best ways – in my opinion – for people to build credit and take charge of their lives.
For Emond, it was a game changer. “The only challenge was it took so long to hear about it,” Emond said. “This is something everyone struggling with a low credit score should know about.”
Simply put, Self and others in the Fintech space are solving problems that traditional financial systems have yet to figure out – in this case, building better credit. The value of companies like these as tools for dealing head-on not only with the financial, but also with the emotional and psychological issues around debt can’t be understated.