As more credit unions are seeing financially struggling members go delinquent, a new, surprising trend is emerging. Debt settlement is gaining traction fast. Behind this trend is a broader, more troubling shift: Americans are taking on more debt, and falling behind more often.
According to the New York Federal Reserve’s last Quarterly Report on Household Debt and Credit, total household debt rose by $167 billion in Q1 2025, reaching a record $18.2 trillion.
In parallel, the American Fair Credit Council (AFCC) reported that its members settled over $9 billion in unsecured consumer debt in 2023, a record high. With concerns about inflation and tariffs, rising interest rates, and mounting financial stress, more people are seeking immediate relief, even if it comes at a long-term cost.
For credit unions and other community-focused financial institutions, this trend should raise flags, not just about financial outcomes, but about member relationships.
When a member turns to a debt settlement company, the credit union is no longer in the driver’s seat. A third party is now handling the negotiation, often charging the member 10%–15% in fees, and providing little visibility into how offers are being calculated.
At its core, delinquency isn’t just a financial issue; it’s an emotional one. According to a 2023 study by the Financial Health Network, more than 40% of Americans say that financial stress negatively affects their mental health, with anxiety and depression cited as common outcomes.
When members fall behind, they’re often trying to navigate multiple obligations, utilities, rent, groceries, and loans, while avoiding a daily flood of calls, emails, and texts from creditors. It’s overwhelming. And when shame, stress, or fear take hold, reaching out to their credit union for help can feel too difficult.
That’s why the appeal of debt settlement is growing. It offers a sense of distance and relief. A company steps in to negotiate on their behalf. No more difficult conversations. No more explaining why things went wrong. Even though these programs often result in long-term credit damage and high fees, they feel easier, and that’s what matters when someone is in crisis.
Credit unions have a powerful opportunity to stand apart. Built on trust, cooperation, and long-term member well-being, they’re in a better position than most to redefine what financial recovery looks like.
Here’s what that could mean in practice:
- Lead with empathy: Instead of approaching delinquency as a payment failure, treat it as a signal for support and assistance. A simple, nonjudgmental phone call or digital communication can open the door to a conversation that changes everything. Enabling members to communicate via digital channels or log in to a portal to begin resolution is easier for most.
- Reduce barriers to help: Requiring extensive documentation to “prove” hardship can feel like another burden. Even in the best of times, friction in an interaction causes members to avoid it. Make it easy for struggling members to seek a reprieve through a digital channel—offer those falling behind the option to skip a payment, restructure their payment plan, or obtain a hardship pause.
- Pair payments with progress: Financial wellness tools, such as credit builder programs, budgeting apps, or coaching services, show members there’s a path forward, not just back to zero. For example, Remynt combines flexible repayment options with financial tools that help members build their credit history and improve financial habits over time.
When a member is behind on payments, they’re often at one of the lowest points in their financial journey. How a credit union responds and makes it easy for a member to resolve issues can shape its long-term relationship and its willingness to engage in the future.
The rise in debt settlement is a symptom of a deeper issue: many people don’t feel like their financial institutions will listen or care when things go wrong. Credit unions can prove them wrong. By embracing empathy, flexibility, and genuine partnership, they can offer a better path forward—one built on trust, not transactions.
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