The Financial Journey is a unique series focused on financial education and opportunities. These stories have been created through a strategic partnership between Wells Fargo and Word In Black.
By Word In Black staff
Why is it so easy to get into debt and so hard to find your way out? And why does trying to manage debt often feel so overwhelming?
A growing number of consumers are facing this challenge. American household debt increased by $34 billion last year, with 18.3 million borrowers falling behind on a credit card, according to the quarterly report on household debt and credit by the Federal Reserve Bank of New York.
Wells Fargo Bank is helping customers lessen stress and learn to manage their credit and debt effectively.
“We have many options and like to connect with customers using a personalized approach that is tailored to their needs,” said Darlene Smith-Daniels, branch manager at the 42nd Street and 3rd Avenue Wells Fargo branch in New York City. “We are very hands-on, letting them know we’re here to help them establish credit or manage their debt.”
Smith-Daniels, who joined Wells Fargo in 2003 as a teller and worked her way up to branch manager, relates to her customers and values the bank’s commitment to assisting customers in this area.
“Growing up, I wasn’t taught a lot about credit,” she said. “It gives me a good feeling to help them with our debt management tools.”
When customers make an appointment to come in and see a banker, we want to get to know them and learn about their financial situation. About 80% of customers say their main goal is managing debt, while 20% want to save more. We want to build trust with our customers, so they feel comfortable when addressing money matters. Finances can be a sensitive subject, and Smith-Daniels knows that talking about them can be embarrassing for some customers.
“We take a personal approach and show empathy,” she said. “Our people are trained to help customers who feel bad about their debt getting out of control and assist them in coming up with a plan to reach their goals.”
Helping customers gain financial literacy is a high priority for Wells Fargo. That includes helping them see the big picture to understand the relationship between credit and debt.
It’s common for customers to come in seeking a personal loan while making the minimum monthly payment on their credit cards, Smith-Daniels said. She and her team introduce Wells Fargo customers to Credit Close-UpSM which allows them to check their FICO score and receive personalized tips and a monthly analysis to help them take control of their debt.
“Managing debt is not easy and can become overwhelming,” Smith-Daniels said, and this can cause some people to ignore their debt. “We work to find ways for them to tackle it, because that debt is not going to disappear. We help them to not pick up more credit and pay down debt, which gives them more options.”
Sometimes a lack of understanding hinders the process. One popular misconception is that there are quick ways to pay down debt.
“We explain that we cannot provide a quick solution, and we counsel them on the need to have patience,” she said. “We show them two approaches: the snowball method — paying off the smallest debt first—and the avalanche method of paying off the highest interest account first. And we work together to find the best method for them.”
Another tool is the Debt-to-Income (DTI) Ratio Calculator to show how debt impacts borrowing power. It’s vital to understand this equation, Smith-Daniels said, because many customers make the mistake of wanting to wipe out all their debt.
“Many customers don’t know until they’re speaking to us that this ratio affects them if they want to borrow again. “It’s best to have a mix of credit and some debt, as long as it’s in line with a healthy debt-to-income ratio. It’s all about management. You must have some debt to show that you can repay it. If you have no repayment history, then lenders may have difficulty lending to you.”
Along with the tools, Wells Fargo offers staff with the skill sets to guide customers through the maze of credit and debt management.
“They need somebody who has been trained and been doing this for some time,” Smith-Daniels said. “I think that is why a lot of customers do come back.”
She sometimes uses an analogy to help customers understand the need for regular financial check-ups and maintenance.
“I ask them how they manage their health and remind them that they see their doctor regularly to make sure everything is working,” she said. “I encourage them to look at their finances that way, to make sure that they sit down with their banker for a review at least once a year and go over their finances.”
The result? “They love it, and definitely relate to it,” Smith-Daniels said. “They say, ‘You’re right. I do need to have that financial check-up to make sure everything is all right, and I don’t get overwhelmed with my debt.’”
The results have been encouraging.
“We’ve had great outcomes,” Smith-Daniels said. “Some customers come back and say, ‘Now I want to apply for a loan or a mortgage because now I have everything under control, and I can manage my debt much more effectively and efficiently.’ It gives me a good feeling to know we’re helping customers.”
Wells Fargo’s personalized services includes Wells Fargo AssistSM for customers who are experiencing payment challenges and need support.
The bank’s approach is designed for the long term.
“We try to follow our customer’s progress and set the expectation that we’ll follow up,” Smith-Daniels said.
“If someone is starting off trying to establish credit, we give them the tools, ask if we can follow up with them in a month or two, see how it goes. Then once they get the credit, we work with them on how to maintain it without becoming overwhelmed. If they’re in trouble, we work with them by scheduling a follow-up meeting whenever it’s best for them. We invite them to come back in to see their progress.
“While getting into debt will always be easier than getting out, Wells Fargo is deeply committed to helping customers reach their goals and gain financial stability. “It does take time — you have to be patient,” Smith-Daniels said, “but we can definitely help you get on the right track.”