Lorna Tan, The Straits Times, 11 June 2017
DEBT CONSOLIDATION PLAN AND CREDIT COUNSELLING ARE AVAILABLE, SO BORROWERS AFFECTED BY CURBS ON UNSECURED DEBT NEED NOT DESPAIR
For borrowers with interest-bearing unsecured debt exceeding 18 times their monthly income for three months in a row, the days of living on credit will come to an end if they do nothing.
If you are caught in this unfortunate predicament, you will be unable to charge new or recurring purchases to your credit card. These include utility bills and even issuing cheques or drawing cash from your unsecured line.
You will also be unable to apply for new credit cards, unsecured loans or increase your credit limit.
The Monetary Authority of Singapore has set a limit on how much outstanding debt you can owe on credit cards and unsecured loans across all financial institutions. The aim is to help borrowers avoid falling deep into debt.
The borrowing limit is being phased in over four years, from 2015, to give indebted borrowers time to gradually cut their debts.
Since June 1, the limit on how much outstanding interest-bearing debt you can owe on credit cards and unsecured loans across all financial institutions has been cut to 18 times your monthly income for three straight months.
This will be further reduced to 12 times monthly income by June 2019 – which will be half the limit of 24 times monthly income in 2015.
WHAT ARE UNSECURED DEBTS?
Unsecured debts are those with no collateral, such as red ink run-up on credit cards, personal loans or an overdraft. This limit applies to interest-bearing balances on personal unsecured credit facilities. It excludes secured loans such as property and car loans as well as unsecured loans for business, medical and education spending.
IMPACT ON AFFECTED BORROWERS
If a borrower had been using his unsecured credit to pay for some of his living expenses or to fund his lifestyle, he may no longer be able to do so with the reduced unsecured debt limit, said Credit Counselling Singapore’s (CCS) general manager, Ms Tan Huey Min.
Painting a bleak picture, she said: “He will have to live with only his monthly income while at the same time pay down his unsecured debts. This means he is likely to be cash-strapped and may turn to alternative lenders, for example, licensed moneylenders.
“But borrowing to make repayment or borrowing to pay for living costs (especially from a more expensive lender) will lead only to bigger debts and hence bigger problems. It would be worse if he were to turn to unlicensed moneylenders. The debt collection actions will cause pressures and distress to the borrower.”
Ms Tan added that this could lead to low productivity at work, embarrassment and even job loss if the collectors keep calling or even visiting the debtor’s office. And it could create tensions at home owing to money shortage and unpaid bills.
“Should the borrower lose his job and/or become depressed, this implies potential family/social problems, as the family could break down or he could become suicidal,” she added.
HELP FOR BORROWERS
CCS offers free talks to explain various other solutions, including the dos and don’ts for handling a debt situation and the common collection actions taken by creditors.
Debtors who do not qualify for Debt Consolidation Plans offered by banks and/or are clueless about drawing up and living within a budget should get information on debt management as well as advice.
Ms Tan advised these borrowers to visit the CCS website (www.ccs.org.sg) to register online and attend a free talk on debt management to learn how to manage a debt problem.
They can also have a one-to-one session with CCS to discuss their finances, work out a monthly living budget and explore suitable solutions to address their debt problems.
To request a one-to-one debt advising session, a debtor first needs to have attended the free info talk and submitted their counselling request package to CCS.
Where applicable, they would be assisted in working out a monthly instalment debt repayment plan via CCS’ debt management programme. This programme will make provisions for his monthly living expenses and, at the same time, set aside sufficient money to make monthly instalment repayment to gradually discharge his debt obligations.
In other words, he would be on the debt recovery journey and become debt-free one day.