$10b in outstanding credit card loans by Xmas

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#1
It's scary isn't it? SGD 10bn worth of credit card debt by Christmas? The paper gives examples from two women and three men on how they manage to amass their debts, and why they continued rolling over their balances. Three of the reasons were due to over-spending, one due to recklessness (punting and losing $100k in the market) and the last because of ignorance and gullibility.

For more details on the cases, please do grab a copy of the Sunday Times. Smile In the meantime, MAS says "don't worry", because even though 1/3 roll over their balances, this means the other 2/3 faithfully pay off their balance in full.

The Straits Times
www.straitstimes.com
Published on Dec 14, 2014
$10b in outstanding credit card loans by Xmas
But two in three customers still pay off debts in full every month


By Radha Basu, Senior Correspondent

Paying with plastic has become so common that outstanding credit card loans are set to top $10 billion for the first time by Christmas, according to figures from the Monetary Authority of Singapore (MAS).

Overall, unpaid balances were at $9.98 billion as at October, the latest month for which figures are available. That is a jump of more than 70 per cent from $5.8 billion for the same period in 2009, just five years ago.

December, with year-end festive shopping and holidays, has always been the month when people use their credit cards most.

Bad debts written off by banks this year rose by nearly 50 per cent to $225 million by October, compared with $152.9 million in the first 10 months of 2009.

And rollover balances - bills that are not paid in full - have also jumped 50 per cent to $5.4 billion over the same period. Several banks recently raised interest rates on credit card bills.

According to figures from Credit Bureau (Singapore), there were nearly 1.58 million credit card consumers as of October, up from 1.2 million in October 2009.

Around one in three cardholders - or nearly 540,000 people - were not paying their bills in full as of October.

And 3 per cent of cardholders - or around 47,000 people at last count - have debts exceeding a year's salary.

Although this group is a concern, experts The Sunday Times spoke to said what the data shows most clearly is that more people are using their credit cards for many more transactions than in the past.

These days, plastic is used to pay not only for big purchases but also grocery shopping and eating out at modest restaurants, as well as for purchases overseas.

"Spending more is not the same as overspending," said Mr Kuo How Nam, president of Credit Counselling Singapore which helps people deep in debt to draw up instalment plans to repay what they owe.

Significantly, the proportion of credit card holders unable to pay their bills in full has remained largely stable - at around one in three - over the past five years.

Bad debts written off as a proportion of rollover balances too have remained stable at around 5 per cent over the past five years.

"The percentage of loans going bad has remained stable, so that is a big relief," said Mr Kuo.

But still, the numbers of those who do not pay in full or those who default on at least a month of payments need to be monitored carefully, he said, adding that MAS was already doing so with more curbs coming in next year.

Those who owe more than a year's salary will have their credit facilities suspended and be asked to pay off the excess by next June, pointed out Mr Kuo.

"They must update their income information with the banks and also immediately take action to bring down their debts to avoid their credit cards from being suspended," he noted.

Dr Siriwan Chutikamoltham, senior lecturer and director of banking and finance at Nanyang Business School at Nanyang Technological University, concurred that the overall credit card situation did not warrant red flags. However, more nationwide data was needed on those who have difficulty paying, she said.

It would, for instance, be useful to know the detailed demographic profiles of those who defaulted on the credit card loans and also the reasons for their default.

"It is important that you identify the type of credit card holders that are susceptible to problems so specific policy can be devised to target them," she added. For example, if a particular age group had a higher default rate, then banks should set a more stringent credit standard for this group.

Meanwhile, with Christmas approaching, Mr Kuo warned consumers to be prudent about spending. "Like a hangover after a party, every year, billings and defaults rise after the festive season," he said. "It is always better to be safe than sorry."

radhab@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
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#2
cut the plastic and pay cash, end it once and for all! Big Grin
1) Try NOT to LOSE money!
2) Do NOT SELL in BEAR, BUY-BUY-BUY! invest in managements/companies that does the same!
3) CASH in hand is KING in BEAR! 
4) In BULL, SELL-SELL-SELL! 
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#3
Don't forget our population has grown a lot since 2009.
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#4
wow this means 1/3 of debt not paid off. That's pretty serious.

The bigger issue would be if banks are developing shoddy lending standards for consumer credit card to boost their profits.

Looks like gamen have to do some regulation here as well and tighten things up a bit.
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#5
It's a good example of compounding interest working against us... Instead of compounding (investing) working for us.
This is indeed worrying as it also says alot of current herd spending mentality.
We cannot discount the fact that alot of spenders really are Chao kuan and never have the intention to pay up. Most just cut the card up and escape back to their country.
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#6
The figure that is worrying is the 5.4 billion balance that is rolled over. Those that are paid at the end of the month should not be worrying.

Some Coporate charged entertainment expenses to Coporate credit card.

They are also the 2% rich that swipe card like nobody business. As long as they pay, it's ok.

5.5 billion is still scary
life goes in cycles, predictable yet uncontrollable; just like the markets, but markets give you a second chance
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#7
My inference from this article:

1. The proportion of ppl rolling over their balance has remained the same (1/3). Number of credit card holders have increased by 31% over the past five years. Hence, it is likely the no of ppl rolling over their balances have increased by 31%

2. The rollover balances amount have increased by 50% over the same period. Therefore, we can conclude the rollover amount per capita of this group has increased.

3. Similarly bad debts have risen by 50% over the same period, on the back of a 31% increase in cardholders.

Not sure if it sounds good from what I infer
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#8
Nvm lah singapore gdp is 300billion++ rite ? banks can afford to write it off. Just be sure you dun invest bank shares can liao loh

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Virtual currencies are worth virtually nothing.
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#9
Some roll over with minimum amount , more bankruptcy coming . Some may just run back to where there came from . Banks will have a lot of law suits and write-off which will hit bottom line.
“risk comes from not knowing what you’re doing.”
I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
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#10
Some snippets from the examples provided in the ST (I will post just a paragraph or two and not the full article; please subscribe to ST to read the full articles):-

Article: Single mom spent $7k on $4k pay

"Single mother Cheryl Ang, 50, earned $4,000 a month as an executive in a software firm but often spent $7,000 on her credit cards.

During the festive season from Christmas through to Chinese New Year, her monthly borrowings could top $10,000.

There would be expensive year-end holidays - to Australia, Japan and South Korea - with her only child, a daughter, now 18.

"Everyone in her school was always going away for holidays, and I did not want her to feel left out because her parents were divorced," she told The Sunday Times.

Her "credit card habit" coincided with her divorce in 2002. Guilt that her daughter was growing up fatherless was a big factor in her spending, she says.

Aside from eating out at high-end restaurants, the mother and daughter had a comfortable, well-furnished Housing Board flat. Ms Ang changed her car every two years."

You can see from the above that the motivation for the spending was a sense of guilt, and also because "if I work hard, I deserve to spend hard". There's also the implicit "Keeping Up With the Lims & Tans" as everyone else was going on a holiday except her.

Article: Siren call of designer goods

"She earned around $40,000 a year but had 10 credit cards that she used to pay for her purchases.

She paid the minimum on her credit card bills, and would sign up for new cards as her debts ballooned.

"What I found incredible was that even banks I owed money to would call me to offer me new cards," she says.

Finally, fear that her husband and family would find out about her debt drove her to seek help at Credit Counselling Singapore. She earns more now, and is working to pay off her $115,000 debt."

The above was caused by a propensity to overspend due to image and prestige, wanting to feel respected and admired. The problem is her salary simply could not keep up with her purchases and so she ended up being $115k in debt.

These two articles illustrate the mentality behind the ballooning debt - a matter of human pride, low self-esteem and wanting to feel important or respected. It will be an uphill task for CCS and the Government to tackle these issues due to the strong growth of the "mass affluent" segment in recent years....
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