Bank of Ireland to offer options to people in credit card debt

Bank of Ireland is to contact more than 10,000 of its credit card customers who make only minimum repayments to suggest alternative options, including switching to a personal loan with a lower interest rate.

The initiative is part of the bank’s “financial wellbeing programme” and is being launched on Monday.

For customers who repay a minimum amount on their credit card each month, it can take much longer to clear their credit card balance, and interest can quickly build up.

Bank of Ireland said nine in 10 credit card customers were aware that it was expensive to pay off only a small part of their monthly bill but most (80 per cent) did not know the interest rate on their card.

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Over eight in 10 (81 per cent) are interested to hear about options that could help them manage their credit card debt better, according to Bank of Ireland research.

Smarter usage

The options to be offered include paying more than the monthly minimum payments, making once-off payments where possible, or switching to a personal loan with a lower interest rate.

The bank said someone with a balance of €3,000, paying interest at a 16.12 per cent rate, who only makes the 2.5 per cent 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 per cent to 5 per cent [€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.

Gavin Kelly, CEO retail, Ireland, Bank of Ireland, said the bank was introducing the initiative so as not to limit customers’ ability to borrow in the long-term.

“A bank encouraging customers to manage their finances in a way that reduces the fees we earn may sound odd,” he said. “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.”

He added that 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,” he said.

“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.”