From stockbrokers to tax preparers, more and more seasoned financial professionals are being replaced by software and online tools that can offer the same services and advice through a computer screen at a fraction of the cost. A new tool from one company, SpringCoin, aims to do this in a controversial industry — credit counseling.
Pride and fear of embarrassment can prevent consumers from asking for help when their finances are in dire straits.
According to a 2010 study by the University of Illinois at Urbana-Champaign, 3 of every 4 online bankruptcy counseling clients did not contact a credit counseling service for debt relief.
SpringCoin joins the many new personal financial management (PFM) tools — each with an emphasis on a unique aspect of finance. SpringCoin’s schtick is to reduce the friction involved with credit counseling.
“I just really wanted to bring technology to automate the whole credit counseling process to help consumers get out of debt,” said Kevin Yu, the 27-year-old co-founder of SpringCoin, in an interview.
Yu, a certified credit counselor, started his own brick-and-mortar credit counseling company and noticed that traditional credit counseling was rather time-consuming. The initial process of gathering account information for each client took roughly two hours, Yu said.
Plans to combat debt
Like most PFM tools, SpringCoin is built on Yodlee’s account aggregation platform, which is capable of collecting multiple account information and transaction histories within minutes. Users are immediately presented with a debt repayment plan and personalized advice based on income, spending and debt.
SpringCoin offers two plans: a basic plan and a premium plan.
For an $8 monthly charge, the basic plan will put the customer on a “debt snowball “plan, a debt repayment method made popular by personal-finance guru Dave Ramsey. After aggregating all credit accounts, SpringCoin will present a calendar with the days that payments should be made. The goal is to maintain motivation by tackling smaller debt balances first.
The basic plan also delivers personalized alerts and bill reminders and uses financial quizzes to educate users, who earn points if they pass. Users can redeem points for gift cards and prizes.
Many aspects of SpringCoin’s basic plan resemble the services available through Mint.com, which is free. Other than pricing, the difference lies in SpringCoin’s instant debt snowball plan and financial quizzes/rewards. The company focuses on action.
“If you just want a place to look at all your accounts in one place, we recommend something like www.mint.com,” as noted in SpringCoin’s FAQ section.
SpringCoin’s premium plan, with a $35 monthly charge, is geared toward consumers who truly require debt relief. In addition to the features of the basic plan, the premium plan uses an automated procedure in collaboration with trusted credit counselors and debt settlement firms to negotiate lower interest rates and payments.
“First and foremost, we wouldn’t recommend the premium plan if there isn’t substantial savings, even after the $35 fee,” said Yu. In fact, users can only sign up for the premium if SpringCoin believes it would yield tangible benefits.
A traditional credit counselor will typically charge $50 to $120 per month, said Yu.
Revamping the industry
SpringCoin comes at the right time. During the recession in 2008, U.S. consumers made an aggressive attempt to reduce their debt. According to the Federal Reserve, outstanding consumer debt fell 6 percent by 2010. However, outstanding consumer debt in the U.S. is rising again. In January 2012, U.S. consumers owed a total of $2.51 trillion — roughly 1.9 percent less than 2008 levels.
Currently, in addition to offering a new debt relief service to consumers directly, SpringCoin aims to provide its services through white-label partnerships, allowing banks and other financial institutions to rebrand the services.
Mobiles apps are also planned, but their functionality is undetermined, said Yu.
SpringCoin’s technological approach will address an industry that is known for being tedious, expensive and, at some credit counseling companies, sketchy.
“There are a lot of unscrupulous companies out there that just fail to provide the consumer with the services that they promised. There’s a lack of transparency. They charge outrageous fees. These are just a few of the things we’re trying to fix,” Yu said.
Yu believes that SpringCoin will replace traditional credit counseling.
Interested? This is the time to join. SpringCoin will be giving away free accounts (for the life of the account) during April to celebrate National Financial Literacy Month.