Employee debt is real, and it’s escalating. Many employees who took a financial knock during covid haven’t been able to regain their losses. The stress this creates has negative effects on employers. One of the best things employers can do to ease the problem is to create a debt benefit system, which includes education on debt consolidation programs and how to avoid financial traps.
However, debt benefit programs are only one part of the debt reduction services that employers can provide.
Which Debt and Credit Challenges Are Employees Facing?
A survey of mid and large-sized businesses revealed that 37% of employees couldn’t manage their debt burden. Unsecured debt is far more prevalent than secured debt, with 63% of employees reporting that they have one or more types of unsecured debts; for example, credit cards, personal loans, student loans, and medical debt.
According to research, the primary sources of financial stress in employees’ lives are sufficient retirement funds and emergency savings. Delve a little deeper, and you see that just over 50% of employees are worried about paying the mortgage or rent and not having enough money to purchase all necessary groceries.
Financial shocks — surprise expenses — are particularly challenging. Studies show that 60% of Americans will have at least one financial shock in their lives. Thirty percent of Americans experience multiple financial shocks annually. People who have savings, use them to cover unanticipated expenses (replacing a fridge or losing a job). Unfortunately, 70% of American families don’t have any savings to fall back on.
Of those who used their savings to cover a financial shock, nearly 50% never entirely replenished them, making debt reduction almost impossible.
How To Help Employees Avoid Borrowing For Short-Term Needs?
Employees often end up in a financial trap whereby they need money immediately to pay expenses and the only lenders willing to give them money without comprehensive credit checks charge exorbitant interest rates. After paying back the loan, they still don’t have enough money to pay all their expenses, so they go back to short-term lenders.
This cycle is best dealt with by professional debt reduction services, but employers can play an important role in helping employees evade the short-term loan trap.
The first step is to understand the nature of the trap and empathize with their employees who are either on the brink or already stuck. Employers then use their insight and understanding to create financial assistance programs that address short-term needs rather than focusing primarily on retirement.
The trick is to be relevant and the only way to do that is through an employee-wide financial well-being assessment. The information gleaned enables employers to create solutions that meet employees’ needs; for example, establish a policy and procedure for employee loans that enable employees to borrow from the business at low-interest rates.
Credit and Debt-Related Benefits For Your Employees
A few years ago, job applicants looked at the financial benefits potential employers had on offer, like medical, paid leave, and retirement plans. These are still important, but now applicants are also looking at the financial wellness benefits businesses provide. These include things like financial literacy education, financial planning courses, and loan repayment assistance.
Employers who offer financial wellness benefits are more attractive to all employees, no matter how long they’ve been in the job market. According to a survey, 72% of workers look for companies that care for their staff’s financial well-being. Employers with financial wellness benefits have a higher employee retention rate than those without.
This is borne out by a survey that found that 51% of employees believe employers have an obligation to provide them with the information and tools they need to resolve their credit issues and attain and maintain financial wellness.
Credit and Debt-Related Benefits
Credit and debt-related benefits cover a lot of ground, including inflation-adjusted earnings and the true cost of loans (how monthly payments and interest rates affect the overall costs).
Additional essential information includes realistic budgets, what to look for in bank offers, how to manage credit cards, and, very importantly, how to manage financial setbacks.
As mentioned, education and literacy programs must include short-term needs, but they still need to include long-term planning for retirement. In an ideal world, employees would put 15 – 20 percent of their income into a retirement plan of some sort. In reality, employee contributions average 8.8%, and employer contributions are only 4.6%.
Financial benefits should include a thorough understanding of the importance of retirement savings and how to maximize returns for the highest possible retirement earnings.
Tips For Employers in Designing Credit- and Debt-Related Benefits
Employers must consider several factors when designing their credit and debt-related benefit programs.
1) Include content that meets the specific needs of your workforce. Consider including single mothers, youngsters with student debt, those on the brink of retirement, and older employees who are putting kids through college.
2) Clearly communicate the financial well-being benefits to all employees. Not only must employees know about the benefits, but they must be able to access them easily. This could include information packs made available to all employees, with options to attend live or online courses and access to financial counseling programs.
3) Confidentiality is essential. Employees often hold back the seriousness of their financial situation out of fear that their peers will find out and they will be harshly judged for their lack of financial acumen. They must be made to understand that confidentiality is guaranteed and that the only way to get out of the debt trap is to be honest about everything.
4) Employers must find out about and abide by national and state regulations. This pertains to laws governing things like providing low-interest or no-interest personal loans to employees and the manner of repayment. Knowledge of labor laws is unquestionable.
How Alleviate Financial Solutions Can Help You Paying Off Debts
Alleviate Financial Solutions provides debt relief services, including debt consolidation programs, debt settlement, and debt reduction. We provide assistance to get you back on track to financial freedom.
Contact us via our onsite contact form or call (877) 879-4905 for more information on any of our debt settlement services.