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‘Tis the season to pay: Avoiding holiday debt

Holiday Debt

As Scrooge might say, ‘tis the season to pay—and for exorbitant holiday debt. As it is, consumer debt is at an all-time high exceeding $4 trillion and it’s no wonder it’s worse this holiday. Let’s take a look at the stats:

Though not surprising or anything new, 70% of adults are stressed about this year’s holidays, mostly because of money, payments, and debt. Yet, despite so much consumer debt, people are still willing to continue to charge their credit cards for holiday gifts. This is one of the most expensive ways to borrow money, however, and can lead to more debt very quickly.

Holiday debt and credit card spending

For example, according to an Experion survey on holiday spending for 2019, consumers will spend 75% more on gifts this year than last. In 2018, they planned on spending $949 for holiday gifts and this year, it’s more like $1,649. But according to Ted Rossman, from CreditCards.com, if shoppers spend $1,500 and only made their minimum payments, it would take over eight years to pay off—and the accumulated interest would be $1,217 at our current interest rates.

That is a huge price to pay in interest alone. At that point, we have to ask: is it worth it? Is there a better, more responsible way to pay for holiday gifts for our loved ones? 

Spending your hard-earned savings or succumbing to debt 

According to a recent NYTimes’ article, Merkel Landis from the Carlisle Bank of Pennsylvania came up with the idea of the Christmas Club savings account back in the 1920s. This became popular before middle-class consumers had easy access to credit cards (and the debt that often comes with them). The whole point was to save money (and perhaps even accumulate interest) leading up to Christmas shopping. What a concept: spend what you have. 

However (and to be fair), even the most debt-free savvy spenders among us have since replaced their holiday savings accounts with various types of credit cards. This could be partly due to online shopping. For example, 53% of all holiday shopping this year is expected to be done digitally. This kind of shopping really only leaves consumers with credit cards as a way to pay. 

As well, some of these credit cards earn people rewards, which could be another reason for the shift away from savings toward credit. The more they buy, the more they earn. But, as NYTimes so aptly puts it: “buying more stuff than you typically do increases your risk of credit card debt.” Consumers are thus forced to succumb to record-high-interest rates, everlasting credit card debt, and spending beyond their means. 

Save up and spend online this holiday—without the debt

Thankfully, the digitization of payments is changing all of that

Consumers (and merchants, for that matter) finally have another online payment option. VoPay, as an example, is a financial technology (fintech) company that digitizes direct payments. Consumers can once again tap into their hard-earned “Christmas Club” savings accounts to pay for their holiday shopping online. They can rid themselves of crippling credit card debt and the stress that comes with the holidays but isn’t necessary anymore. They can once again spend the money that they have—and enter 2020 debt-free with a little bit of planning and savings.

Learn more about VoPay and how digital payments work.

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Online Payments

The Very Real (and Hidden) Costs of an NSF

NSF

Non-sufficient funds, NSF, and insufficient funds all mean the same thing and are fairly self-explanatory: a lack of funds in one’s account to cover a transaction. When a transaction or payment attempts to go through an account, the bank takes time to compare how much money is in the said account versus how much money is required for the payment. When there is a lack of funds, the bank either rejects (NSF) or allows (overdraft) the transaction to go through. Both options have costly repercussions, especially on businesses.

Interestingly, there are plenty of articles on the cost of an NSF for consumers—and how to avoid insufficient funds in personal bank accounts with overdraft protection and proper budgeting—however, there isn’t much information out there for businesses. 

Business owners are the ones most likely to incur the very real and highly damaging costs of an NSF and that’s what we’ll talk about today. 

The real cost of an NSF for business owners

Charging NSF fees are good and very bad for business

Let’s quickly look at the repercussions of a “bad cheque” (or check), for example, on a customer. This is important because the business and consumer are inextricably linked and are often one and the same (as in business-to-business B2B relationships).

According to Nerd Wallet, some U.S. states allow businesses and merchants to charge customers up to $30 for handling costs of an NSF. On top of this cost, the banks can also charge the consumer a fee of around $30. That consumer now owes $60 in processing fees on top of the original amount, which has yet to come out of their bank account—and may eventually require legal action and collections agencies, which could damage their credit rating. 

For a business owner, that ability to charge customers for NSF fees is both good and bad for business, depending on how you look at it. Hitting customers with NSF fees, of course, is not a great way to build a good brand reputation, credibility, or encourage repeat, loyal customers. The same applies if the business and consumer are one and the same in a B2B relationship. For example, if a business owner pays a contractor or landlord with a “bad cheque” their reputation and credibility are on the line at the very least. 

Regardless of whether the business owner can, in fact, collect a fee for the bounced or bad cheque, this is still not the most costly offence of an NSF. 

The real cost of an NSF: Disrupting a business’ (cash) flow 

Beyond fees and reputation damage, the actual cost of an NSF for businesses is the damage that it does to its regular business flow. That is the daily workflow, transactions, accounts receivable, and above all else, the available cash flow. 

Slow turnaround time of banks and cheques

Let’s say that a small business budgeted for a certain large payment to come in at the beginning of the month and planned their cash flow, projects, bills, and other payments according to that invoice. They receive the cheque on time and mail it to the bank to be processed. Several weeks later, they receive a notice that the cheque bounced and that they owe a processing fee. 

The tardiness of this NSF notice is the first and perhaps biggest offence. Had the small business owner known that the cheque was bad weeks ago, they could have adjusted their cash flow, budgets, and bills accordingly—and simply not gone through with the transaction (or tried billing a different account). 

Worse, the customer could be long gone or difficult to track down, now that the quid pro quo doesn’t apply. Also, if a trusting relationship wasn’t previously established, the business owner could be out of luck for this payment or have a difficult and expensive time collecting. 

The cash flow cost of an NSF

This slow turnaround time can be detrimental to the available cash flow for businesses, especially those on a tight budget, large invoices, and many bills. There is, of course, always the risk of not getting paid or having to spend valuable time and money doing accounts receivable—and chasing people down for money weeks after the fact. 

Eliminate the risk of an NSF for businesses and consumers

Here at VoPay, we’ve found a solution to eliminate the risk for businesses and digitize bank payments. Our platform tells the business right away if there are sufficient funds in the customer’s account immediately—without ever sharing bank account details or introducing security risks.

VoPay uses open banking technology to authenticate EFT and ACH transactions instantly with lower transaction fees than a credit card. This allows businesses to reduce and prevent NSF fees, process payments faster, track transactions easily and stay on top of cash flow.

Learn more about VoPay today.

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