Digit, maker of one of the first apps to help people save by automatically sweeping modest amounts of money from checking into savings, is turning its attention to credit card debt.
The app can now be set to automatically make an extra payment every month on a user’s credit card, the fintech announced Tuesday.
At the end of January, the Federal Reserve reported that U.S. consumers had $1.03 trillion in credit card debt.
“It’s really expensive, so for the younger generation, it’s going to steal from their future selves, and it’s hard to see that,” said Ethan Bloch, Digit's CEO.
Three-quarters of Digit customers have credit card debt, and many make only the minimum payment on their cards each month.
Credit cards are pieces of plastic that provide instant gratification, Bloch said, "and we give them out to people with no seat belts, no safe driving functionality. That to me is irresponsible.”
Digit launched three years ago. Bloch would not say how many customers it has, but he says the company has helped its clients set aside more than $1 billion for emergency funds, travel and other purposes.
Digit’s algorithm automatically determines how much a customer can safely siphon into savings each month after forecasting upcoming expenses, including infrequent ones like school taxes.
Customers have some control over the auto saving: They can pause it, set minimum checking balances and use the money in Digit to protect their checking accounts from overdrafts. The user can also choose to “boost” a goal, temporarily increasing the amount Digit will set aside.
The company noticed users making payments on their credit cards from their Digit accounts.
“This would require them to keep track of it, to look at how much is in Digit, to remember to make an extra payment — it was a bunch of manual steps,” Bloch said.
Now customers can create a “reduce credit card debt” goal in Digit. Money will get siphoned into that goal every few days. When the Digit Pay feature is turned on, it will automatically make an extra payment every month on a credit card.
“You can be off living your life, and Digit’s in the background, chipping away at your credit card debt,” Bloch said.
Other companies share the goal of helping people to reduce their credit card debt.
LendingClub offers lower-rate loans people can shift their card debt into. Consumers with no savings tend to use their credit cards as a de facto emergency fund to bridge expense gaps, said Steve Allocca, president of the online lender. Many of those folks often get caught in a "downward spiral" and pay on average $1,000 a year in interest and fees, he said.
“Players in the financial services space have an obligation to do a much better job at being on the side of consumers, giving them a clear path to create a habit of saving,” Allocca said.
Another online lender, SoFi, also preaches the credit card debt message. In August, it announced that its members had cumulatively paid off more than $5 billion in credit card debt using SoFi Personal Loans. Those customers reduced their effective interest rate by 42% on average, the company said, and saw their credit scores rise by 17 points.
Meanwhile, Bloch made news recently by announcing that Digit was redesigning its app and dropping its chatbot.
“The chat experience stopped serving our customers well, so we changed the default" user interface, Bloch said. “When people come to Digit they want to see their balance, they want to save, they want to adjust a goal. To put that in front of a chat interface is suboptimal.”
Digit still offers chat in its app, but no longer makes it the primary interface.