Discover Tries to Help Customers Pay Off Debt

Submitted by SadInAmerica on Sun, 06/01/2008 - 11:40am.

A credit card company that wants to help you pay off your debt may sound like an oxymoron, but that's exactly what Discover Financial Services  is doing.

Aiming to stand out from the credit card pack, a few months ago the Riverwoods, Illin.-based company launched the Paydown Planner for its Discover credit card customers.

The Internet calculator, part of a suite of online tools, lets customers figure out how long it will take them to pay off their balance by making specific payments.

The Paydown Planner culls data from the customer, including interest rate, past payment history and spending patterns, to individually forecast how long it will take customers to pay their debt if they make a specific payment each month. Users can increase or decrease the payment to gauge the time it will take to reduce their balance.

"Its very individualized," said Mike Bousch, vice president of marketing planning at Discover Financial Services (DFS: 17.15, -0.10, -0.57%). "There are other calculators on the Web that work through an amortization table…but this is customized to the person, so in that regard it's very individual."  

The Paydown Planner compliments Discover's Purchase Planner calculator, which helps card members determine how long it would take to pay down a big-ticketed purchase. Both tools are free to Discover's members.

"If you have a balance already and want to purchase a new computer or television, it's a complex calculation to figure out what your future payments need to be,'' said Bousch.

Discover's moves to offer card members ways to help pay off their debt isn't the first thing that would come to mind when thinking about a credit card company. After all, most consumers figure credit card companies want you to carry a balance for as long as possible and are looking for ways to increase your interest rate. 

Critics of the credit-card industry contend the companies increase profits by charging fees for things like late payments or making a payment over the phone. Customers, in some cases, are also charged for carrying a balance over their limit. 

The industry has faced backlash in recent months as the credit crunch has ravaged consumers, with Congress holding hearings to look into the practices of the industry.

"This is both a marketing tool and a reaction to the consumer credit crunch,'' said George Van Horn, a senior analyst at IBISWorld, the Los Angeles market-research firm. "Not only is the industry very competitive, customer loyalty is quite fleeting."

Once the credit card company gets a client, the objective is to keep the client as long as possible. If offering a tool that helps a client get out of trouble builds loyalty then it makes sense, even if the company loses some fees, he said.

"If it keeps a customer longer, it also saves money in what they have to spend to find new customers," said Van Horn, noting other credit-card companies are likely to copy Discover.

This isn't Discover's first foray into helping customers with their debt. Last November, Discover launched the Credit ScoreTracker which lets customers track their credit scores. Card members are alerted when their score changes and can set a target credit score. Discover also has the Discover Motiva Card, which gives card members who make on time monthly payments six times in a row the next month's interest back as a Pay-On-Time Bonus.

"In some ways it's a differentiator," said Bousch of the paydown calculator and its other offerings. "We're trying to say, 'Hey, we're not necessarily likely everybody else.' We've gotten feedback through the website that customers are pleasantly surprised that a credit-card company would come up with something such as a balance paydown calculator."

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Submitted by SadInAmerica on Sun, 06/01/2008 - 11:40am.