6 Ways to Help Employees Pay Down Debt

Debt is a financial weight that many of us bear, and at times, it can feel impossible to get out of. Many employees start their careers with a student loan burden, averaging $40,780 per student borrower. In addition, workers of all ages are accumulating credit card debt. Continuous accumulation of debt often leads to a debt spiral, making debt payment a more urgent need than putting aside money for retirement.

According to BrightPlan’s 2022 Wellness Barometer Survey, 72% of employees are stressed about their finances and rising debt is a contributing factor. 50% of employees with debt stress spend an hour per week on average dealing with debt-related issues at work, according to the Financial Health Network. Seeking support, 62% would be more likely to stay at a job that offered debt-related benefits. For these reasons, many employers are stepping up to help their employees pay down debt through company contributions, diverting a portion of 401(k) matching funds to debt repayment, or funding employee debts through payroll deductions. In fact, starting in 2024, employers will be able to "match" employee student loan payments with matching payments to a retirement account, providing additional motivation for employees to save while paying off their student loans.

Here are 6 ways you can help your employees pay down debt. 

Understand employees’ needs

While a majority of employees are living paycheck to paycheck, understanding exactly how to help your workforce paydown debt and grow their savings will depend on their specific needs.  Some employers may find that their employees are saddled with student loan debt while others may see differing employee needs. Conduct surveys and analyze anonymized data by demographic to uncover the unique needs of your workforce before implementing specific debt management solutions and strategies.

Emergency savings accounts

It can be challenging for employees to set aside the recommended 3-6 months of living expenses for emergencies. According to the Consumer Financial Protection Bureau, 24% of consumers have no emergency savings and 39% have less than a month of income saved for emergencies. An employer-sponsored emergency savings account (ESA) can help employees save for emergencies by automatically deducting a predetermined amount from an employee’s paycheck each pay period and depositing it into a separate savings account. This can help bridge a financial gap when employees need to cover an unexpected expense or if cash gets tight. These types of accounts make contributing to emergency savings automatic and eliminate the self-discipline and time needed to manually move money to a separate savings account. Additionally, some employers offer matching to incentivize employees to build their emergency savings.

In addition to private employer-sponsored ESAs, starting in 2024 401(k) and 403(b) plans can allow non-highly compensated employees to establish an emergency savings account. Contributions would be limited to a certain amount per year and employees would be permitted to withdraw from their account tax and penalty-free up to four times per year.

Student loan assistance

While many employees start their careers with student loan burden, student debt follows some employees throughout their career. In fact, 46% of student loan debt is held by those over 40 years old. Employer contributions can help employees pay off student loans faster and save on interest over the life of the loan. Additionally, student loan repayments of up to $5,250 per year can be provided to employees on a tax-free basis.

Mortgage loan support

With increased housing shortages and skyrocketing home and mortgage costs, some employers have added housing assistance to their benefits offering. For example, some offer down payment and closing cost assistance up to a certain amount in the form of a loan that is forgivable over a specified term. Others provide financial assistance through grants, loans, and security deposits, along with homeownership education and counseling. This can assist many employees in purchasing a home that they may not have otherwise been able to.

Debt consolidation resources

Providing employees with debt consolidation resources can simplify the debt repayment process for employees and increase the likelihood of faster debt payoff. When faced with multiple, high interest rate debts, it can make sense to consolidate those debts into a single, larger loan (merging individual payments into a single monthly payment). Depending on the employee’s credit history and current credit score, they may be able to obtain an interest rate that is less than the average interest rate of the multiple debts.

Financial wellness programs

A comprehensive financial wellness solution can help employees set and achieve financial goals, such as paying off debt and building savings. Digital led solutions provide real-time feedback on employees’ progress and encourage employees to take action consistent with their goals and objectives. Additionally, Certified Financial Planner™ professionals and financial wellness coaches can advise employees on their debt repayment options and help employees understand their overall financial health.  

Debt can present major obstacles on the path to achieving financial life goals. It also affects other aspects of employees’ well-being, including their  physical, mental and social health. With so much of the workforce experiencing debt-related stress, helping employees develop a plan to pay off debt and contributing to their debt paydown strategy can be powerful for driving employee engagement, retention and overall well-being.