Breaking the debt cycle with financial wellness and EWA

A key part of personal finance is managing debt. Borrowing is part of our financial ecosystem. Debt is usually framed as something one does for big events, or life-changing and life-affirming moments, like buying a house or pursuing post-secondary education. This is usually called good debt. 

There’s also bad debt, which comes in the form of loans or credit cards. It becomes an uncomfortable, shame-filled reality for many people who have needed to borrow against themselves to buy necessities. Add on any sort of health catastrophe or life-saving procedure, and there’s more debt needed simply to stay alive.

American household debt is nearly at $18 trillion, according to a report released by the Federal Reserve Bank of New York’s Center for Microeconomic Data. Debt steadily increased in 2024. Credit card balances, for example, total around $1.6 trillion. Student loan balances grew by $21 billion to also sit around $1.6 trillion in total. 

Debt becomes a barrier in financial wellness. In ZayZoon’s report on the state of employee financial wellness, 58% of our 5000 employee respondents said they had zero savings. Paying for everyday bills, making a dent in debt and just trying to stay afloat means your employees, often those considered middle class, don’t have any money for emergencies or retirement. 

Breaking a debt cycle requires discipline, patience and a bit of grace. Resources and tools like earned wage access (EWA) can help people find a way back to spending and saving money, and accruing less debt. Ahead, we’ll explore financial wellness and the debt cycle, offering EWA as a solution to get ahead and make the most of your money goals and well-being.

Debt, stress and financial wellness

Employees don’t leave their day-to-day financial stresses at the door when they come to work: 63% of HR professionals in our report said financial stress impacts employees, calling it “a storm cloud that hovers over the workplace.” 

Financial burdens prod at an employee’s morale. Not only will their job performance be affected but their engagement with other employees and managers may deteriorate, too. 

One of the ways to mitigate stress and help end a vicious debt cycle is embracing financial wellness as part of a holistic wellness approach. 

Employers feel positive about integrating financial tools and resources into every day offerings for employees: in a Bank of America study, 97% of employers said they feel responsible for employee financial wellness. The study also found that 80% of employers thought including financial wellness opportunities had a positive impact on the business because it resulted in more loyal, engaged and motivated employees. 

Financial wellness can include a number of different components including educational resources and courses, investment opportunities, and, crucially, tools that enable employees to get access to their pay before pay day. Earned wage access (EWA) is a prime example of a low-effort, low-cost way to provide financial wellness for your employees.

EWA and debt

EWA isn’t a loan but a way for employees to access a part of their earned wages or salary ahead of payday. EWA can be a valuable and financially empowering benefit for many people in many different circumstances. Sometimes it’s useful to pay off bills faster or stash away savings, knowing that whatever’s leftover can be used for every day buying. 

How does EWA work? 

EWA providers aren’t all the same. Every model is different. At ZayZoon, EWA is free for employers to turn on through their payroll provider. There’s a small transaction fee for transfers of cash to a bank account, however, there are other no-fee payout options available for users. 

EWA at ZayZoon does empower employees to take advantage of their earned income as cash if they need it before payday but we also through other specific perks. For instance, ZayZoon customers can choose a free gift card instead of cash if, say, they need to make a grocery purchase from Walmart or need to get an emergency item from Amazon. There are numerous gift card options available and they are boosted up to 25%, allowing folks to have more spending power wherever they’re already shopping. 

Consider, too, the gas card. This perk gives users the ability to have their money go directly where they need it to so they can fill up and go. Get up to 5% back on top of whatever amount that's taken out. 

Other ZayZoon perks include discounts on car insurance and prescriptions, which can, when added up, impact a person’s budget. For renters looking to increase their credit score, consider Boom, which works to report rent payments to all three credit bureaus to help renters get a boost in their credit score.  

ZayZoon’s EWA offerings provide an opportunity for users to better understand and manage their finances in whatever way they want. With EWA, users may be able to avoid any late fees or penalties, and be able to cover minimum payments on debt or credit card bills (crucial to avoid any consequences on credit scores.) Access to earned pay before payday with EWA can also help get people out of overdraft immediately, and even go toward paying down high-interest loans at a faster pace.   

EWA isn’t like a payday loan that will accrue interest. Rather, EWA is a benefit and an additional tool in a varied and abundant financial toolbox. 

Types of debt 

Most people are just getting by with the money they make, which is likely why so many of us turn to loans or any kind of borrowing so we can afford the basic things we need. In our report, we surveyed 500 HR professionals and 61% of them said their employees are living paycheck to paycheck. Ten percent of the surveyed employees told our interviewers they were most stressed out about paying off their accrued debt. 

Consider the credit score: we use it all the time for rental applications, sometimes employers check it during the hiring process. It’s a number that, whether we like it or not, determines so much in how or where we get to live our lives. Our report found that over 71% of respondents had poor to fair credit scores. 

There are a number of different types of debt and borrowing one can accumulate in their lifetime. Most debt falls into the following categories:

1. Secured

Secure debt is one that’s backed by collateral, often property or a possession of high-value. For example, if you’ve ever seen or experienced a house or car being seized as part of a debt repayment, that would be collateral for repayment if a lender stopped making any payments. 

Secured debt types include mortgages and automobile loans. Some personal loans are considered secured and do require a piece of collateral to get signed over to the lender. 

2. Unsecured

The most common type of personal debt many people accrue is unsecured debt. This type of debt doesn’t have collateral or anything tied to it. Unsecured debt types include credit cards, loans, including a standard or debt consolidation loan, and medical bills.

What impacts debt? 

Debt isn’t just an accumulation of credit. There are usually other pieces that make debt unruly, such as interest. But debt, too, can have a more profound effect on how we live day-to-day, beyond being able to pay it back and get out of the cycle. Debt can have serious consequences that limit access to some of our lives most important purchases.

Interest

A key consideration of debt and an ongoing debt cycle is interest. That has to be factored into the amount that’s repaid. Credit cards have high interest rates, while mortgages are substantially lower but the total cost is vastly higher. 

Payday loans, for example, are a high interest debt type. There are other high interest loans such as private school debt and credit cards, but those are often limited. Payday loan fees can range from $10 - $30 for every $100 borrowed. That’s a lot if you’re borrowing up to your entire pay period—nearly 400%.

Credit score

Consider the credit score: we use it all the time for rental applications, sometimes employers check it during the hiring process and it’s even used to determine if we’re eligible for additional so-called good debt like a mortgage. 

It’s a number that, whether we like it or not, determines so much in how or where we get to live our lives. Our report found that over 71% of respondents had poor to fair credit scores. 

Low credit scores often mean more financial stress because it’s harder to course correct that score into something positive. It’s not impossible, but it can make big purchases significantly harder. 

Debt repayment types

Debt repayment is where a lot of the debt cycle comes into play: can a person pay off their debt entirely or is it a long-term situation but debilitating? 

In general, there are two different types of debt repayment that capture people in a debt cycle: 

• Revolving debt: something like a credit card or a line of credit that allows someone to use up the loan amount and then pay it back. This type of debt requires minimum payments to be made and it, of course, comes with interest. Revolving debt does allow borrowers to keep using their credit or loan if there’s room and they’re still paying it down.
• Installment repayment: a predetermined amount paid back on a lump sum amount. Think of a student loan, car loan, or a mortgage. There’s usually a set amount each month to pay, including interest, that has to be paid back within a specific time-frame.

5 tips to break the debt cycle 

People get into debt for all kinds of reasons. Labeling debt “good” or “bad” encourages an unhealthy judgment of why a person goes into debt and, most importantly, who they are because of it. A binary view of debt and a debt holder isn’t helpful because it’s still debt, and debt has its uses as an emergency tool for many people. 

What perhaps may be more helpful is understanding that debt has its uses in a personal finance ecosystem but reducing the current strength of the American debt cycle is important.
Here’s what you can do to help break out of a debt cyle: 

Understand finances

Start with knowing where and when your money is going out. First, when are the big bills and expenses due? (e.g. rent, credit card payments, loans, etc.) How much is each streaming subscription? What’s the cost of groceries? By broadening the aperture of your financial picture, you can better understand how and when to budget. 

Some key ways to know your finances include knowing the exact amount of money that comes in every month via salary or wages, track all of your receipts and purchases and keep tabs on purchases or bills that aren’t monthly so you aren’t surprised when they appear.  

Create a budget

Once you’ve gathered all of the elements of your financial portrait, set out to create a workable budget that you can live within. Budgets, like any kind of boundary, are really useful for you to understand your own limits. Try using budgeting tools and apps or learning about financial wellness to see what applies to your own situation to better understand your money and how to make the most of it.

This practice can help you reach whatever financial goals you may have: saving for a trip or a down payment on a property, or helping to reduce the stress of living paycheck-to-paycheck. Budgeting doesn’t have to be restrictive—putting room in the budget for fun or novelty items and moments is encouraged! Having a financially secure life doesn’t mean not living it. 

Rely less on credit cards

One of the biggest reasons people remain in a debt cycle is they are spending beyond what they bring in and often relying on credit cards to make purchases. If curbing spending on credit is a key goal of yours, try putting in your budget cash only (meaning debit or physical cash) for certain purchases. Reducing one’s reliance on credit card spending will help reduce spending by way of added interest on statements. 

Save where possible

You’re not in debt and have no savings because you enjoy a latte or artisanal toast every so often. These are reductive and, frankly, judgmental ways of thinking. Money comes down to priorities: what are the most important decisions for you? When it comes to savings, putting aside $20 a month or $10 a week can make a difference. So much of personal finance is a long game and that small amount, like stashing pennies in a penny jar, can add up. 

Try EWA

There are plenty of financial resources for someone to tap into for sticky debt situations. EWA allows users to receive a portion of their earnings before payday. For example, there may be a bill due three days before payday and, instead of going into overdraft or using more credit, an EWA provider can send part of their earnings up front to make the payment. 

Financial wellness to gain financial empowerment

Debt happens to the best of us. No matter if it’s good or bad, debt is something that can have a profound impact on our mental and physical health, and can show up in the workplace. 

One way to help is to adopt a proactive approach—getting ahead of any debt before it becomes so tumultuous and stressful that a person can’t see through. Financial education from ZayZoon offers resources on many different parts of personal finance that can help alleviate debt (like how to create a budget and what to include). The more they engage, the more their financial literacy score improves. 

Provide your employees with a holistic financial wellness plan, including financial literacy opportunities, debt reduction strategies, or an EWA tool like ZayZoon, to create more financial empowerment and potential freedom from debt.