Credit and Loans

 

 

 

 

 

 

 

 

 

Watch your spending and avoid the credit trap.

You can improve your debt situation!

Spent too much time at work lately? You may well feel that you deserve to live it up, to grab that latest designer handbag from the Orchard Road boutique store, relax at a spa or indulge in a good meal at a nice restaurant.

But do think twice before whipping out your credit card or using your unsecured loans for your spending. If you can’t meet your payments on your credit cards or unsecured loans in full and on time, beware! Credit card debt can grow at an eye-popping rate of about 25% every year. Add late payment charges, annual fees and other charges to that, and you may find yourself drowning in a sea of debt, barely paying enough to cover the interest amounts.

Remember that only you can help yourself. The best way to avoid getting into excessive debt is to adopt good saving and spending habits and to live within your means.

i) How do I avoid the debt trap?

ii) What should I do if I am facing problems repaying my debts?

iii) I heard that the Monetary Authority of Singapore introduced new unsecured credit measures. Tell me more!

To help borrowers avoid falling deep into debt, the Monetary Authority of Singapore has introduced a limit on how much outstanding debt you can owe on credit cards and unsecured loans across all financial institutions. The borrowing limit will be phased in over four years to give indebted borrowers time to gradually reduce their debts.

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iv) How are banks helping me to understand how my debt will grow if I don't pay my bill in full?

Information disclosure to help consumers make better decisions

From June 2015, if you do not pay your bills for credit cards and unsecured loans in full, you will receive a disclosure statement from your bank. This statement sets out i) the total amount and time needed to fully pay off your debts if you pay only the minimum payment each month; and ii) the amount of debt that will accumulate by the end of 6 months if you make no payments during this time. Each table will be customised to a borrower’s unique circumstances.

This information aims to help borrowers understand the costs of being in debt so that they can better manage their spending and cash flow. A sample of the additional disclosure table is appended below with the customisable portions detailed in red:

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If you have outstanding balances on your credit card or unsecured loans, it is important to pay more than the minimum sum each month if you can manage it, and stop spending on your credit card or using your unsecured loans. The examples below show how your total debt will be affected by how much you pay and spend on your credit card or unsecured loans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

By the time their debt is fully paid off, Borrower A will pay almost 50% more than what Borrower B pays in total. Borrower C will never be able to pay off his debt fully if he continues spending $200 each month on the credit card. Eligible borrowers who sign up for RAS will bring down their debts even faster than borrower B. Such a borrower would have an estimated outstanding balance of $31,900 after 2 years.

If you are not able to pay the minimum payment for 60 days past when it is due, your banks will need to suspend your credit.

v) What are credit reports? Should I be concerned with my credit report?

All of us have credit reports if we have ever had a credit card, or taken a loan from a bank. A credit report contains records of your credit facilities and your payment history; this includes late payments, defaults and bankruptcies.

The data residing in a credit bureau is contributed by its members such as banks. When you apply for a credit card or an unsecured loan with a bank, the bank will obtain a copy of your credit report from the credit bureaus as part of its credit checks. Data in the credit bureaus has recently been expanded to include your total credit limits and outstanding debt balances across all financial institutions.

This information allows banks to assess your ability to service your debt obligations. A bank may decide not to issue new credit cards or unsecured loans, or increase your credit limit, if you are accumulating too much debt or you have not made payments for any of your loans. Therefore, a poor credit record can hurt your ability to borrow money.

For more information on how to obtain a credit report, please refer to the websites of Credit Bureau (Singapore) Pte Limited (CBS) and DP Credit Bureau Pte Ltd (DPCB).

Click on these links to view a sample credit report.

CBS: www.creditbureau.com.sg/understanding-my-credit-report

DPCB: www.dpcreditbureau.sg/SampleReport.aspx