How Balance Transfers Help Consumers Manage Debt
(London, UK): As consumers continue to face increasing debt levels and expenses, new data from Auriemma Consulting Group suggests that balance transfer offers continue to be an effective tool for consumers who are struggling to pay down their debt.
Balance transfers can help consumers better organise and pay down their debts by consolidating payments to one institution, often at a competitive interest rate, sometimes as low as 0% APR. The result: 49% of balance transfer customers report that they have seen a decrease in their total debt level since taking the balance transfer, versus only 25% that report increasing their total outstanding balances.
“Balance transfers can be a win-win for issuers and consumers alike,” says Jaclyn Holmes, Director of Auriemma’s Payment Insights practice. “Issuers get the chance to acquire a new customer while struggling consumers can apply APR-savings directly to their debt.”
Despite the product’s benefits, only 14% of credit cardholders have taken a balance transfer offer in the past year, pointing to a potential gap in the marketplace. While the product isn’t for everyone, there are opportunities for issuers to better communicate the benefits of balance transfers to those who may need it.
Over one-in-ten consumers who were offered but declined a balance transfer did so because they thought applying would be more hassle than it’s worth, and 16% of customers reported not wanting to open a new account. Additionally, 5% of consumers indicated that they simply didn’t know enough about balance transfers. Pricing continues to play a role as well. Almost one-in-five customers say they didn’t take a balance transfer because they didn’t want to pay a fee and 10% of customers said that the rates offered were not attractive.
“Balance transfers offer consumers a way to better manage and ultimately pay down their debt,” says Holmes. “With some guidance, issuers have the opportunity to develop loyal, long-term customer relationships, as our research indicates that many consumers continue to spend with their balance transfer card after their debt is paid off.”
The study (UK Cardbeat) was conducted online within the UK by an independent field service provider on behalf of Auriemma in October 2018, among 800 adult credit cardholders. The number of interviews completed on a monthly basis is sufficient to allow for statistical significance testing between sub-groups at the 95% confidence level ± 5%, unless otherwise noted. The purpose of the research was not disclosed nor did the respondents know the criteria for qualification.
For more than 30 years, Auriemma’s mission has been to empower clients with authoritative data and actionable insights. Our team comprises recognised experts in four primary areas: operational effectiveness, consumer research, co-brand partnerships, and corporate finance. Our business intelligence and advisory services give clients access to the data, expertise and tools they need to navigate an increasingly complex environment and maximise their performance. Auriemma serves the consumer financial services ecosystem from our offices in London and New York City. For more information, visit us at www.auriemma.group or call Dave Edwards at +44 (0) 207 629 0075.