Financial institutions must abide by certain rules to protect borrowers from racking up too much unsecured debt. Find out what these are and what it means for you.

What are the measures?

Unsecured credit, such as credit card debt, are loans that are not backed by collateral. Interest rates charged on these kinds of loans are often high as a result.

Specific measures have been put in place to protect borrowers from accumulating too much of such debt.

If your total unsecured debt exceeds the borrowing limit for 3 consecutive months

You cannot:

• Apply for a new credit card, unsecured facility or increase in credit limit.
• Use your existing credit card, or draw down on your unsecured facilities.

The borrowing limit is 18 times monthly income and will be reduced further to 12 times monthly income from 1 June 2019.

This is to discourage long-term reliance on unsecured credit and reduce the rate of debt accumulation.

If you are 60 days past due on any credit card or unsecured facility

You cannot:

• Apply for a new credit card, unsecured facility or increase in credit limit.
• Use your existing credit card, or draw down on your unsecured facilities.

This measure is to prevent debt from snowballing if there are difficulties even repaying the existing debt.

If you have not paid your credit card bill and revolving unsecured credit facilities in full

Your bank has to make it clear how your debt will accumulate if left unpaid. They will send you a statement with the following information:

• Total amount and time needed to fully pay off your debts if you only pay the minimum amount each month.
• The total amount of debt that will accumulate by the end of 6 months if you don't make a payment in the next 6 months.

Several assistance schemes and repayment plans, such as the Debt Consolidation Plan, are available to help these borrowers pay down their existing debts.

Credit bureau checks

Your creditworthiness affects the amount you can borrow. Banks must conduct credit bureau checks on you:

• Before granting a new credit card or unsecured credit facility
• Before granting a credit limit increase
• After receiving information that may cast doubt on your creditworthiness

The credit bureau reports include information on your aggregate credit limits and outstanding debt balances across all banks, as well as any late payments, defaults and bankruptcies.

This information helps your bank grant loans that are within your ability to repay.

Help with paying your debt

Are you having trouble managing your debt? Rolling over or missing payments is only going to make matters worse.

You can improve your debt situation by taking the following steps:

• Get your credit report and assess the total amount of debt you have.
• Talk to your bank about moving the outstanding balances on your credit card and unsecured loans into a debt repayment plan. See if you can repay your debt by instalments.
• Don't borrow from other sources to pay off your debts without comparing the interest charges and fees.
• Stop charging to your credit cards or drawing down on your unsecured loans. Put away your cards and your credit lines!
• Pay the debts which incur higher interest first but look out for penalties.
• Contact Credit Counselling Singapore if you need advice on managing your debt.
• Apply for a Debt Consolidation Plan if you have unsecured debts exceeding 12 times your monthly income. Your debts from across all banks will be consolidated under one bank. Repayment will be at a lower interest rate for up to 10 years.