Irish consumers take action on long-term credit card debt
Bank of Ireland publishes initial results of long-term credit card debt campaign
- Customers contacted about ways to better manage long-term debt twice as likely to improve their finances
- More than one in five (22%) of customers contacted took significant corrective measures to reduce persistent debt
- Campaign is part of Bank of Ireland’s Financial Wellbeing programme
Bank of Ireland today published initial results of a campaign to help customers reduce long-term credit card debt.
As part of its ongoing focus on improving the financial wellbeing of customers, earlier this year the Bank contacted c.9,500 customers who were only making minimum payments on their credit cards over a 12 month period – and therefore paying credit card interest every month – to suggest alternative ways to manage their credit card debt. Advice offered to customers to help them save money included paying more than the monthly minimum payments, making once-off payments to reduce their balance where possible, or even switching to a personal loan with a lower interest rate.
Bank of Ireland found that customers who received targeted advice on reducing their long-term credit card debt were twice as likely to improve their finances. Analysis conducted to date on approximately half of the group shows that 22% of customers took corrective action by reducing their credit card balances or making a once-off repayment of at least 10% of the balance. This compares with only 11% of customers in the control group, who received no communication.
Bank of Ireland’s campaign leveraged behavioural science to encourage and inform customers with long term credit card debt to help manage their finances more cost-effectively. Results from this programme will inform future ways of engaging with customers to help them enhance their financial wellbeing.
Commenting on the initial results of the initiative, Gavin Kelly, CEO Retail Ireland, Bank of Ireland said: “Managing your cards properly is a key driver of financial wellbeing. That is why we have zoned in on customers who are only paying the minimum off their credit card each month, which can impact their financial wellbeing in the long run. The change we have seen in some customers contacted as part of this campaign is very encouraging, but we recognise that this is only a start. We will take the learnings from this campaign and increase our efforts in persuading others who may be struggling with long-term debt to take action.
“The campaign has demonstrated that practical nudges and guidance can change the habits of some customers who may be unsure of how to manage their credit card debt effectively. I would encourage customers to contact one of our Financial Wellbeing Advisors to talk about simple ways to take control of their money. Improving the financial wellbeing of our customers – which is all about having the confidence to manage your money, plan your future, and be as prepared as possible for the unexpected – is a top priority at Bank of Ireland.”
Behavioural Finance specialists, Oxford Risk, were engaged to support the campaign. Greg Davies, Head of Behavioural Science with Oxford Risk said: “We were very impressed with the reaction of customers who were contacted through this campaign. A situation where more than one in five takes positive action is double the standard benchmark, and is generally not achieved through customer communication campaigns. Where you are trying to persuade consumers to better manage their long-term debt, you have to approach it in a different way, and behavioural science can play a key role. This campaign is a great blueprint which can be used in future communications with customers.”
Credit cards can be an effective short-term tool for handling emergencies or unplanned expenses. However, a credit card is not an efficient way of managing longer term debt. Customers who only repay a minimum each month will take much longer to clear their credit card balance, and interest will also accumulate.
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 vulnerable customers.
Research carried out by Bank of Ireland as part of the campaign had revealed that 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. Over eight in ten (81%) were interested to hear about options that could help them manage their credit card debt better.
ENDS
Notes to editor:
A customer with a balance of €3,000, paying interest at a 16.12% rate and only making 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.
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 clear their balance on a monthly basis and avoid incurring interest.