Credit and Loans

 

 

 

 

 

 

 

 

 

Less on credit means more peace of mind. That swanky new watch or luxury bag may feel like a well-deserved reward for all your hard work. But spending beyond your means could hurt you and your family. Avoid the hidden dangers of credit cards by adopting good spending habits. Manage your finances wisely.

You can improve your debt situation!

Been working too hard? You may well feel that you deserve to live it up, to grab that latest designer handbag from the Orchard Road boutique store, treat yourself to a luxury watch, go for a high-end private tour package or indulge in a good meal at a nice restaurant.

If you are paying for these with your credit card or relying on unsecured loans, think again. You could end up paying much more than you bargained for when you don’t pay your card bills in full and on time!

Credit card debt can grow at an eye-popping rate. Interest on outstanding amounts are charged monthly at around 25% per annum.

If you only pay the minimum on your credit card bills, adding the annual fees, finance charges and other charges to the amount owed, you will find yourself drowning in a sea of debt. The minimum sum paid will barely cover the interest amounts you owe.

Only you can help yourself. The best way to avoid getting into debt is to adopt good saving and spending habits. Plan and budget well. Spend less than you earn and to live within your means. If you have difficulty paying your credit card bills in full, take active steps to manage your debt. Help is available if you need it.

i) Here are some tips on how you can adopt good spending habits and manage your finances wisely.

ii) Rolling over or missing payments? You can improve your debt situation.

iii) How does the latest industry-wide borrowing limit for unsecured credit affect you?

To help borrowers avoid sinking deeper 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.

 

iv) If you don't pay your credit card bills in full and on time, debt will quickly snowball!

Information disclosure to help consumers make better decisions

If you do not pay your credit card bills and unsecured loans in full and on time, your bank will send you a letter that sets out i) the total amount and time needed to fully pay off your debts if you pay only the minimum sum 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.

The graphic below, based on someone with an outstanding debt of $5,000, will help you understand the costs of being in debt so that you can better manage your spending and cash flow:

The Costs of Being in Debt

Think that paying the minimum payment is good enough? Pause to think again! If you have outstanding balances on your credit cards or unsecured loans, interest is immediately charged on any new purchases in addition to the existing outstanding balance. This means when you miss just one full payment, every subsequent spend on the credit card will immediately attract up to around 25% interest. It is important to pay as much as you can!   The examples below show how your total debt will be affected by how much you pay and spend on your credit cards or unsecured loans.

How Interest Charges Affect Total Debt

As you can see, by the time their debt is fully paid off, Peter would have paid almost three times his initial debt, and more than twice of what Mary has paid in total! Tom will never be able to pay off his debt fully if he continues spending $200 each month on the credit card.  

If you are not able to pay the minimum sum for two consecutive months, you will not be able to obtain new unsecured credit facilities. Your overdue credit lines will also be suspended. Late payments could also negatively affect your credit scores with the credit bureaus.

v) What are credit reports? Why should you be concerned about your credit report?

Simply put, the credit report is a “report card” of your credit-worthiness in Singapore. Banks use this information to assess your ability to service your debt obligations.

All of us have credit reports if we have taken a credit card or a loan from a financial institution (FI) before. A credit report contains records of your credit facilities and your payment history; this includes late payments, defaults and bankruptcies, as well as data such as your total credit limits and outstanding debt balances across all FIs. The data residing in a credit bureau is contributed by its members such as banks, credit card issuers and other major FIs.

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. If you  have been late in paying or have not made full payments for your loans, a bank may decide not to grant you any new credit cards or unsecured loans, or not increase your credit limit.  

A poor credit record can therefore hurt your ability to borrow. To improve your credit reputation, visit CBS’ website on “10 Steps to Improve my Credit Reputation”: http://www.creditbureau.com.sg/consumer-education for more information.

Credit Bureau (Singapore) Pte Ltd (CBS) and DP Credit Bureau Pte Ltd (DPCB) are the two consumer credit bureaus in Singapore. A consumer who has recently applied for a credit facility from the banks or FIs in Singapore will be entitled to a free credit report from CBS or DPCB. Visit their websites for more information on how to obtain a credit report. 

For illustration purposes, below is a sample report from CBS:

Sample credit report 

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

Please also refer to DPCB’s website for a sample credit report: www.dpcreditbureau.sg/SampleReport.aspx