How credit unions are transforming borrowers into savers

The rising level of consumer borrowing is alarming, but what is more scaring is the fact that a lot of people don’t have enough savings. Ideally, the common advice is that you should eliminate your debts before thinking about saving because you don’t want to accrue more interests. That’s why borrowing to save may seem like a wrong concept.

The initiative branded “save as you borrow “is fronted by the credit unions and it is helping borrowers transform into regular savers even when this wasn’t one of their habits. This also reveals how citizens with low incomes strain to save but this program is changing this situation.

How it works

This method is all about asking borrowers to save some money while paying what they owe. It works on your habits and pushes you to save when you want to get a loan. it is a great option since it is protecting the vulnerable citizens who may be seeking credit but the only option they can get is a payday or other high-interest loans.

(TOP: Logo of a Credit Union. Image: Radio Kerry).

The “borrow and save” initiative is designed to help people accumulate enough savings to handle expenses as well as deal with emergencies in the future. Without some savings, you are prone to unhealthy lending options that can compromise your financial goals. Normally, a certain percentage of the loan will be kept in a dedicated savings account and you will continue paying back the loan until you reach the agreed threshold. Some credit unions may require you to pay at least 50% of the loan before you can be allowed to access the savings account.

This money is yours and you are at liberty to use it in any way. For most people, this has become a catalyst for savings since it’s easy to add more funds to the existing account. At the same time, the amount held in the savings account lowers the risks posed to credit unions and it has been observed that the number of defaulters has been significantly lower.

Credit unions have policies regulating who can become a member. They restrict membership to people in a certain area or working for specific organizations. After your membership application is approved, you may retain the membership for a lifetime, even when you no longer satisfy all the requirements. Having a share account and savings is a common requirement and you have to maintain your account if you are to retain your membership.

Over 25% of the workforce lack savings

Over the years, the policies related to behavioral change has attracted significant interest. For instance, saving as you borrow, automatic enrollment into a pension scheme is just examples of strategies that are designed to work this way.

It’s not just the quarter of employed adults without savings that should worry you. Almost a third of adult citizens have under $1000 in savings. As such, there are immense efforts to ensure more people adopt the strategy used by the credit unions to change how people save for the future. While it may seem like a new idea, the people using it are quite joyful because they can have something to lean back on during emergencies and they can develop long-term saving habits.

People who are financially vulnerable need help

Basically, credit unions are tasked with a huge responsibility in the consumer finance industry. This is because most of them design credit products aimed at making people’s lives better. The vast evidence of the benefits of programs like “save as you borrow” shows how these unions are critical to enhancing the resilience of financially vulnerable persons.

Credit unions are ready to serve people with low credit scores and a hard time getting credit services. The officers are ready to look into your situation and decide which bad credit direct loan suits your financial situation. Besides helping you get a good loan, it’s also possible to access services that will help you in managing your budget and handle your bills. While most credit unions have online platforms where you can submit the application, it’s better to interact with the officers in person so that you can get the best service.

The average credit scores for joining most credit unions is around 560 but it serves as an indicator of your previous financial habits rather than a strict requirement. This is because the majority of people who need the services have problems with their credit scores. If you make timely payments, the credit union will report regularly and this helps improve your credit scores.

Credit unions focus on customers

The moment you open an account with a credit union, you automatically become a member. Generally, these organizations are designed to offer the members the best customer support as opposed to generating huge revenues for the stockholders at the expense of members. As such, most of the policies implemented are friendly to the members and at times you may get an opportunity to vote for some policies. As such, the rules are quite lenient even when you’ve made some mistakes.

Traditional financial institutions like banks make lots of profits from fees. But credit unions have low transfer fees and they normally don’t charge ATM transactions. Unlike with banks, the overdraft charges are friendly and this implies that you end up saving a lot of money if you work with a credit union.

With a credit union, you get better rates on your savings and at the same time, the loans have lower interests. Since a credit union doesn’t focus on making huge profits, members can easily get a loan with friendly terms.

Credit unions are a great place to start if you want to build savings or repair your credit scores. Besides having friendly terms, the “borrow as you save” program is quite effective.  As such, if you have been struggling to make regular savings, you can benefit from the services offered by credit unions. However, the only downside is that some of them are not huge and hence the branches are limited to a certain geographical region. But this is a negligible tradeoff considering the benefits.

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