3 ways to manage personal or business debt with AI solutions
Photo by Nicola Barts
In the contemporary world, debt has long been a persistent problem. According to the US Federal Reserve, credit card dues amounted to a whopping 18.04 trillion dollars in the fourth quarter of 2024. In addition to individuals, many small firms use credit cards to obtain funds. Their median balance stands at around $7000.
Plastic money debt is only a part of the problem. Massive volumes of unpaid loans are due to banks and financial institutions worldwide. Business Insider has some startling figures. It reports that the average American’s dues are over $104,000. They span education loans and mortgages, besides vehicle loans and others.
Thinking about monetary obligations from multiple sources is enough to get one sweating. Over time, pending dues snowball into complications for individuals and businesses. A 2024 Bankrate survey found that 47 percent of US adults face mental health concerns due to financial stress. Arguably, many skin and cardiovascular issues also emanate from this source!
Unpaid loans also directly relate to a poor credit score. It makes future funding trickier to get. Surprisingly, technology can solve this problem and help people get on track financially.
Using AI for debt management
Fortunately, artificial intelligence may have a solution to let you improve debt management and eventually emerge from under your dues. Let’s identify a few key areas where AI can assist you with outstanding payments.
Analyzing spending patterns
The foremost benefit is helping you track your spending patterns to develop a personalized budgeting and costing plan. AI tools can analyze your transactions from different accounts to understand how you use your money.
If you make an optimized budget, it will become easier to pay off periodic dues like a credit card bill. In the US, card debt is among the most prevalent financial concerns. Nowadays, advanced TLO skip tracing alternatives let collectors conduct bulk searches and find up-to-date information on individuals who owe money.
According to Debtor Inspector, evolving technologies allow collectors to use advanced search options. They make it simple and cost-effective to locate individuals. Some wrongly assume that dues will go away if they move abroad. Doing so can lead to steep taxes on canceled debt or even legal action.
AI can assist with financial planning to slowly ease worrisome, long-due payments. Some of these tools also send personalized communication. Suppose you have been overdoing it with entertaining or eating out. A smart digital assistant can tell you to consider saving in that specific expense stream.
You can also tailor your budget to your vision. A 50/30/20 budgeting rule is a classic budgeting approach you can follow. An AI tool can build a budget per this rule, setting aside 50 percent for your needs and 30 for your wants. The remaining 20 percent goes into savings.
Intuitive software can tweak the framework based on various factors, like higher living costs. For example, a 50 percent allotment may not cut it for the high rent in larger cities like New York or London.
Picking smarter investments
Investment options have grown exponentially in the past few years, but finding the right one remains daunting. AI can help you find optional investment avenues to grow your wealth, thus creating more available funds for loan payments.
Consider using a sentiment analysis AI tool to assess if the market is bearish or bullish. It could also be neutral. These solutions interpret various factors, from geopolitical developments to corporate M&As. The results can guide better investment decisions and prevent losses.
Many businesses use algorithm trading for their investments to secure faster market wins. AI gives you higher speed and accuracy to understand complex datasets and base your decisions on concrete insights. However, be careful of the threat of black swan disturbances. Forbes notes that algorithms may magnify these unpredictable events because of their natural volatility.
Another concern is that an algorithm-based decision may become inscrutable for traders. Since AI can have black box characteristics, interpreting the reasoning of some outputs may be too complex even for experts. Some results may be incorrect or skewed because of minute human error or inherent data biases.
Selecting debt avalanche or snowball method
You can use artificial intelligence to select the best repayment option based on your financial situation and long-term goals.
In the debt avalanche method, your priority will be paying off high-interest debt first. It can let you clear your dues quicker and lower the total interest. However, it can be tortuous to follow when certain life events require additional expense.
In contrast, the debt snowball method starts with the smallest debt first. It is an encouraging approach and may be easier to sustain. However, it doesn’t offer comparable interest or time savings to the avalanche approach.
So, how can you select the optimal debt repayment solution? It depends on many factors: your spending habits and personal ambitions are just two of these.
With artificial intelligence, you can check various payment scenarios to decide on the best way ahead. You can see the predictions for the time required to clear your debts and net interest amounts.
Is using AI for debt management safe?
Its immense versatility in money management has made AI a go-to for many individuals and companies. Numerous banks and financial institutions use smart chatbots to deliver personalized advice to clients. From KYC forms to scenario forecasting for businesses, artificial intelligence can simplify and automate routine tasks that earlier consumed hours.
At the same time, this approach does have some intrinsic risks. Data privacy is a legitimate threat since AI has unwittingly benefitted hackers. It has become elementary to develop malicious code for hijacking and phishing. Thus, it is crucial to protect sensitive information related to personal or business use.
Firms must draw out a detailed data protection and privacy policy to manage these problems. For example, why not consider including encryption and role-based access? Employee training can help your workforce understand how to implement and follow these checks.
Likewise, individuals using AI to make financial decisions should emphasize regulatory compliance and cybersecurity. Select verified tools that follow safe data handling practices.
As artificial intelligence becomes ubiquitous in finance, consider using it to manage and lessen your debt load. You might be pleased by the benefits that accrue.