Kristen Holt, President & CEO
Debt is a fact of American life, but if you share these money smart tips with your mortgage borrowers you can help them successfully manage it. According to the New York Federal Reserve, the collective household debt in the United States (which includes home loans, auto loans, and credit card debt) is about $12.75 trillion. That may seem like a staggering number, but there are plenty of ways for families to tackle debt that may not be obvious at first.
As a mortgage loan officer, you’re uniquely positioned to help your mortgage borrowers manage or eliminate their debt. Use the 5 tips below to set your borrowers on the path towards a debt-free future:
1. Automate as much as possible
Automation takes all the thinking out of debt payment, because the money automatically debits from their account. This makes it harder to overspend, because the money is disbursed immediately. There are several ways to automate – and if they’re already a customer of your bank, you can help them set this up right away!
For one, they can use the “Modern-Day Envelope System.” Help them set auto drafts from their main checking account into multiple “savings” accounts. Give each account a title like travel, credit card debt, and utilities—then advise them to only pay bills from the titled accounts. It’s the digital equivalent of putting money into different envelopes for different purposes!
You can also help them automate their financial life by using mobile apps that automatically deposit money into their savings account, so they don’t even realize it’s gone. They can use money from this stash to pay extra on debts once a month.
At GreenPath, we’ve developed a program called Simple Payment Plan that is currently free for the first year thanks to a sponsorship from Freddie Mac. The Simple Payment Plan withdraws a set amount of money each payday, then pays the user’s bills each month. The user can round up their payments to pay down debt even faster. For instance, if their mortgage payment is $1,135, they might choose to make two payments of $600 instead. This can shorten your borrower’s 30-year mortgage by over 4 years with minimal impact to their monthly budget. Your mortgage borrowers can sign up for the Simple Payment Plan by calling GreenPath Financial Wellness at 800-550-1961.
2. Pay off the smallest balance first
Never forget the power of psychology in finances. Being motivated is a key part of being successful at paying down debt, so helping your borrower get those quick wins is crucial. Advise your mortgage borrowers to pay the minimum on their other accounts, and then put any extra funds towards one account. When that account is paid off, they’ll feel a huge sense of accomplishment.
Once they pay off this smaller balance they can move to the next debt, and repeat until all the accounts are paid in full. By being rewarded with wins, they’ll be more likely to keep the progress going.
3. Use credit card rewards/points to pay down the balance
Credit card companies are smart. They use points to get you to spend more. The problem is that credit cards have some of the highest interest rates of any financial product, so if they aren’t paid down fast, they can balloon quickly.
But your mortgage borrowers can turn the tables on the credit card companies. Rather than cashing out points on a gift card or transferring the rewards balance into a bank account, many reward programs will allow points to be applied towards the credit card balance. Advising your borrowers to use this feature will considerably accelerate how fast they can pay down their debt!
4. Search for credit cards with the best interest rates available
Credit cards with lower interest rates mean that more money goes to principal when a payment is made. This saves your mortgage borrowers money on interest and slows the growth on their credit card balance. If they stop spending on the account, and keep paying their bills, they’ll pay the debt down faster on a credit card with a lower interest rate.
If they have a high balance on a card with a high interest rate, help them find zero interest balance transfer offers. Figure out how many months the offer is valid and subtract a month. Then divide their total balance into manageable monthly payments to help them pay down the debt before the offer expires. Most importantly, advise them to take the card out of their wallet so they don’t use it!
5. Consider a debt management plan
A lesser known way of paying down credit card debt is to establish a debt management plan. Your borrowers create one by working with a licensed non-profit counseling organization like GreenPath. We contact their creditors to work out debt repayment terms, and we can usually negotiate lower interest rates and get late and over-limit fees waived. Debt management plans provide structure to consolidate debt payments. Plans typically save a lot of money and pay off debts within five years or less.
To ensure your mortgage borrowers are getting quality service, make sure they’re working with a non-profit agency. GreenPath can deliver services in all 50 states, and you can also find an agency in your area by going to www.nfcc.org.
Pass along these expert insider tips to your mortgage borrowers to help them pay down their debt all year long.
The opinions and insights expressed in this blog are solely those of its author, Kristen Holt, and do not necessarily represent the views of either Mortgage Guaranty Insurance Corporation or any of its parent, affiliates, or subsidiaries (collectively, “MGIC”). Neither MGIC nor any of its officers, directors, employees or agents makes any representations or warranties of any kind regarding the soundness, reliability, accuracy or completeness of any opinion, insight, recommendation, data, or other information contained in this blog, or its suitability for any intended purpose.
President & CEO of GreenPath
Kristen Holt is leading GreenPath Financial Wellness toward a bold vision: remixing the American dream so that it works for everyone. As an executive with over 20 years of global leadership experience, she brings a distinct combination of creativity with financial acumen, and has achieved success in an influential, complex non-profit at United Way for Southeastern Michigan and a fast-paced, entrepreneurial, global professional services firm.
Kristen holds her MBA from the University of Michigan and is a Certified Public Accountant. She is a trained facilitator in design thinking. Currently, Kristen serves on the National Foundation for Credit Counseling board of directors, the national organization for nonprofit credit counseling. She has served on multiple non-profit boards, including the Organic Trade Association, where she was elected as treasurer.