Bank of Ireland launches initiative to help customers reduce their credit card debt
- Initiative is part of Bank of Ireland’s Financial Wellbeing programme
- As part of the programme the bank is leveraging behavioural science to deliver positive outcomes for customers struggling to manage their finances
- Handling your borrowings comfortably is one of the key drivers of financial wellbeing
- Increasing payments or moving card balance to a lower cost personal loan could help customers reduce repayment time and cut interest charged
9 February 2021 – Bank of Ireland has launched a new initiative to help customers with long-term credit card debt by suggesting money-saving alternatives.
Used wisely, credit cards can be valuable short-term tools for handling emergencies or unplanned expenses and spreading out the cost of big ticket items. For customers who repay a minimum each month, however, it can take much longer to clear their credit card balance, and interest can quickly build up.
By leveraging behavioural science, an approach used by many global banks to identify financial wellbeing opportunities for customers, this new initiative aims to help customers be smarter about how they use their cards. As part of its Financial Wellbeing programme, the Bank will be contacting over 10,000 of its credit card customers to suggest alternatives such as paying more than the monthly minimum payments, making once-off payments where possible, or even switching to a personal loan with a lower interest rate.
For example, someone with a balance of €3,000, paying interest at a 16.12% rate, who only makes the 2.5% minimum payment (€75 on a balance of €3,000, reducing as the balance reduces) would take over 22 years to clear their balance completely, paying a total of €3,178 in interest. However, by increasing the minimum repayment from 2.5% to 5% (€150 on a balance of €3,000) they would save €2,129 in interest and reduce the term by over 13 years. Alternatively, moving their credit card balance to a five-year personal loan would save €2,511 in interest paid and reduce the term by over 17 years.
Bank of Ireland’s Financial Wellbeing Programme aims to help customers improve their financial literacy, capability and confidence. Since the launch of programme in 2019 over 250,000 people have accessed the financial wellbeing supports on the Bank’s online financial wellbeing hub, over 100,000 people have taken the online financial health check, over 800 schools have participated in its financial literacy initiatives, and a specialist unit has been established to support the financial wellbeing of vulnerable customers.
Nine in ten credit card customers are aware that it’s expensive to only pay off a small part of their monthly bill but most (80%) don’t know the interest rate on their card, according to Bank of Ireland research. Over eight in ten (81%) are interested to hear about options that could help them manage their credit card debt better.
Commenting on the initiative, Gavin Kelly, CEO Retail, Ireland, Bank of Ireland said:
“A bank encouraging customers to manage their finances in a way that reduces the fees we earn may sound odd. But as well as being expensive for the customer, having consistently high credit card debt could limit their ability to borrow in the long run. We want to have a long-term lending relationship with our customers, supporting them with day-to-day services like cards and small loans as well as important lifetime purchases such as a mortgage to buy their own home. Helping customers put their finances on a more sustainable footing is good for everyone.”
“Handling your borrowings comfortably is one of the key drivers of good financial wellbeing along with spending within your means, building savings buffers and planning to meet long-term goals. Customers who only pay the minimum off their credit card each month take much longer to clear their credit card balance, and interest can quickly build up. Our research confirms that most of these customers are aware that the way they use their credit cards is expensive and they would like to do something about it. However, they don’t know exactly how expensive it is so the aim of this initiative is to get that message across and provide our customers with alternative options to clear debt faster and save money.”
Notes to editor
Credit card interest rates reflect the fact that credit card debt is not secured by any of the cardholder’s assets and therefore carries a higher degree of risk for banks than other loans. Bank of Ireland encourages customers to keep paying down their credit card debit where possible as credit cards enable consumers to avail of flexible, short-term finance and to avoid many transactional charges. A large proportion of customers clear their balance on a monthly basis, incurring no interest.