How Financial Services Can Help Black Communities Overcome Troublesome Debt
We know that many Black communities in America face troublesome debt. In contrast to good debt, which is worth incurring for long-term benefits, troublesome debt limits people’s ability to save money and invest in such benefits. For example, if people struggle to keep up with car payments and bills, student loans are sidelined. Challenges in managing debt, combined with deeply embedded, structural discrimination, pose the greatest obstacles for Black Americans burdened by troublesome debt.
How does this get fixed? Part of the solution is to offer financial services to help Black community members reduce their debt. While financial institutions, technology companies and nonprofits already offer debt management services, too many potential beneficiaries still don’t use them. Our new report, Overdue: Addressing Debt in Black Communities, challenges us to re-think how we can support individuals to manage their debt, while affirming the need to address the systemic causes at the root of the problem.
Last summer, with the support of MetLife Foundation, we conducted 46 in-depth interviews to better understand the needs of Black community members struggling with troublesome debt. Our interviewees were all clients of our partner organizations: The Urban League of Broward County in Ft. Lauderdale, Florida; Bon Secours Community Works in Baltimore, Maryland; and the Brownsville Partnership in Brooklyn, New York.
In our interviews, we heard how overwhelmed and stressed people feel as they try to manage their debt. The typical interviewee estimated holding nearly $33,000 in debt—often owing more than his or her family made in a year, with little promise of higher future earnings. An interviewee in Baltimore said, “I feel like once I pay the debt off, there’s always something else—another debt behind it coming up.”
Although most community members take responsibility for their debt, limited intergenerational wealth and legacies of discrimination in financial systems leave them on a financial tightrope. Too often, this balancing act is done with little to no resources from family, nonprofits or government programs.
As part of our interviews, we tested 12 debt management offerings using qualitative concept testing techniques drawn from the world of market research. These tests would help us determine why debt management services still don’t help as many people as they could.
Here’s what we learned from interviewee reactions to the offerings:
- Community members are hungry to better understand the dynamics that led to their financial situation. They want detailed guidance to develop or optimize their debt repayment strategy.
- Many felt overwhelmed by the competing responsibilities in their financial life and sometimes overpowered by creditors. They want help negotiating with creditors to address mistakes, ensure the debt is legitimate and negotiate the best repayment plan.
- People don’t always intuitively see the benefits of products and services, like consolidation loans, that experts might see promise in and recommend.
- Community members are neutral on the platform for debt repayment guidance but hold high expectations for all online tools and platforms.
Through our project, we learned that debt-support services are typically offered on an informal, ad-hoc basis and can add burdensome tasks for clients at exactly the moment they feel overwhelmed. Unstructured services also mean that the right kind of help is not always available when the need arises.
Using these insights, our report includes recommendations for product designers that, among other priorities, emphasize design to prevent community members from being overwhelmed, offer immediate and tangible relief options, and ensure potentially valuable products or services aren’t bypassed by community members.
Incurred debt is precluding individuals from achieving financial prosperity, and current services just aren’t working for Black communities. Our human-centered innovation partnerships with financial coaching and counseling agencies reveal that many of these agencies are not currently equipped to help their clients optimize debt repayment. We hope the findings from our new report can help nonprofits, financial technology companies and loan providers better understand what kind of support community members need to address troublesome debt.
Read Overdue: Addressing Debt in Black Communities here.