Monday 3 November 2014

Overspend first, be sorry later

Big spenders chalk up debts of more than a year's salary from splurging non-stop
By Yasmine Yahya, The Sunday Times, 2 Nov 2014

It is so easy these days to shop online 24 hours a day, book a trip to Europe on an instalment plan or even make an appointment for cosmetic surgery in Seoul.

So easy, in fact, that more Singaporeans are falling into the trap of overspending and chalking up massive debts.

Just over half of those who sought help at Credit Counselling Singapore (CCS) last year landed in debt after splurging on brand- name goods, holidays and clubbing, among other things.

"Debtors usually have more than one reason. They may overspend and then become more vulnerable to get-rich-quick schemes, time shares or gambling, and one thing leads to another and the debt gets bigger and bigger," said CCS president Kuo How Nam.

"But the first cause is usually overspending because many people are living lifestyles not justified by their incomes."

There may be more than 40,000 people who owe more than a year's income from credit cards and other unsecured loans such as personal lines of credit or overdrafts.

The Monetary Authority of Singapore estimates that 3 per cent of unsecured credit borrowers' debts exceed their annual incomes. Based on Credit Bureau (Singapore) data showing that 1.44 million people had at least one credit card account at the end of last year, The Sunday Times estimates there to be 43,000 people who had debts of more than a year's salary.

Last year, the average debtor who turned to CCS for help owed $84,447 to seven creditors, but Mr Kuo said that figure is skewed by gamblers, who owe the biggest sums. Most others have debts in the tens of thousands of dollars, and they make up a big group.

"A lot of it has to do with peer pressure or their own values. Some people say they feel they deserve to indulge themselves - they've worked hard, so they deserve to take more cab rides or a holiday even if they can't afford it," he said.

"I asked a debtor once, 'Why did you carry on spending like this?' And the answer was that he was hopeful that some day his income would rise to a level where he could pay off his debt."

Financial advisers say that is a common problem.

SingCapital chief executive Alfred Chia said e-commerce has made it easy for people to use credit cards to shop round the clock, buying things they do not need. Even small purchases can add up.

Travel-related temptations are also pervasive, he noted.

"Some travel agencies have tied up with banks to offer trips to places like Europe on interest-free instalment plans so you can pay for your holiday over 12 or even 24 months," he noted. And if you do not make your monthly payments, you end up with interest charges and late fees.

Financial planner Damian Pang notices that people are taking more holidays, including "staycations" at hotels in Singapore.

"In the past, holidays were seen as a luxury but with so many budget flights now, people take two or three holidays a year. And in the past, we never had staycations. That's a norm now," he said.

He is also seeing more clients going abroad, especially to South Korea, for cosmetic surgery. "That's the power of K-Pop. These trips can easily cost $10,000," he said.

Financial advisers note that overspenders may not splash out on flying business class or staying at top hotels, but they do overspend on shopping or eating out.

"They travel to exotic places, buy branded goods and dine at Michelin-starred restaurants," said Eternal Financial Advisory chief executive Viviena Chin. "The temptation is very high when you are overseas to go crazy shopping. Things are nicer or cheaper and you think you might not come back again soon, so just swipe the card and forget about tomorrow."

Seek help early, unsecured credit borrowers urged
By Yasmine Yahya Assistant Money Editor, The Sunday Times, 2 Nov 2014

Credit Counselling Singapore (CCS) is bracing itself for what could be a deluge of requests for help next June, when new rules on unsecured loans come into effect.

The organisation, which helps debtors come up with repayment plans, says it is planning to hire more staff and upgrade its IT systems for the potential influx.

New central bank rules state that if someone owes money on an unsecured loan, such as a credit card, and does not pay even the minimum sum for more than 60 days, he will not get further unsecured credit from that bank.

The minimum payment is normally $50 or 3 per cent of the amount owed, whichever is higher.

Other banks will also be barred from issuing the consumer with a new card or granting him unsecured credit or higher credit limits.

Banks will also be barred from giving someone more unsecured credit if his total unsecured debt exceeds his annual income for three months or more.

While credit cards are the most common type of unsecured credit, others include personal lines of credit, personal loans and education and renovation loans.

According to the Monetary Authority of Singapore, 3 per cent of all unsecured credit borrowers here have debts exceeding their annual incomes.

Assuming that most people who have unsecured credit have a credit card and, based on latest data from Credit Bureau (Singapore) showing there were 1.44 million credit card holders at the end of last year, The Sunday Times estimates that this could mean 43,000 Singaporeans have that much debt.

"Three per cent may not sound like a lot but it could be tens of thousands of people, who will all find out in June next year that they need to come to us for help," noted CCS president Kuo How Nam.

"If your debt is already more than your 12-month income, please come to us early, don't wait."

If your income has risen, Mr Kuo's advice is to update your income statement with the banks so they can readjust your credit limit.

While CCS hopes that people will take the initiative and seek help now, Mr Kuo notes that most debtors turn to CCS for help only when they have run out of options.

"In many cases, it's the bank that will refer them to us. Most of the time, they reached a point where they couldn't even keep up with the minimum monthly payments," he said.

Often, a debtor starts out with just one credit card but his spending snowballs until he has eight, nine or even 10 cards, as he keeps applying for a new card just to pay off the minimum monthly sum on another, Mr Kuo said.

"So long as a bank is prepared to lend money, they will keep going, but once they can't get any more fresh injections of credit, they start to default and banks start to issue demand notices or take legal action, and that's when they realise they need help."

Last year, 51 per cent of debtors that CCS helped cited overspending, such as on travel and luxury goods, as the main cause of their debts, while 37 per cent cited job-related changes such as retrenchment or a pay cut.

Business costs were cited by 21 per cent of debtors, while medical expenses and gambling were cited by 22 per cent each.

The average debtor last year was a 41-year-old man, married with children, who owed about $84,447 to seven creditors. That sum is skewed by gamblers who tend to owe the most.

CCS has counselled debtors ranging from the low-income to the wealthy. It has counselled people who overspent uncontrollably and those hit by forces beyond their control.

"We've counselled teachers, people who work in banks, women who got into debt because they were helping their husbands' business ventures. There are people who don't really have much savings and encountered a jobless spell of a few months. Sometimes that's all it takes," he said.

No comments:

Post a Comment