How to clear your excess debt in 8 years

Tough new credit rules take effect in just a few days, but so far only a handful of heavily indebted people have sought help under a new scheme to cut their red ink. -- PHOTO: ST FILE
Tough new credit rules take effect in just a few days, but so far only a handful of heavily indebted people have sought help under a new scheme to cut their red ink. -- PHOTO: ST FILE

Come June 1, heavily indebted individuals with unsecured debt of over 24 times their monthly income, will find their borrowing facilities suspended. As at February this year, some 32,000 borrowers will be affected.

The Monetary Authority of Singapore is limiting unsecured borrowing to stop people from accumulating excess unsecured debt. The new borrowing limits will be implemented over four years to give people time to gradually reduce their debts.

The rules that start in two weeks will initially affect borrowers with unsecured debt of more than 24 times their monthly pay. That gets tighter still from June 1, 2017, when the limit falls to 18 times the monthly income. It goes down again from June 1, 2019, to 12 times monthly income.

The tougher regulations have been accompanied by efforts to help those heavily in the red.

If you have unsecured debt more than 12 times their monthly income before June 1, you can apply to the Repayment Assistance Scheme (RAS) to pay your debt at a lower interest rate.

The RAS is a centralised repayment solution set up by the Association of Banks in Singapore (ABS), 12 banks and two card issuers, which allows you to reduce unsecured debt in excess of 12 months your monthly income at a lower interest rate of 5 per cent a year, over eight years.

As at May 17, the RAS unit has received over a thousand applications. ABS said banks have just started to inform affected borrowers who have until Dec 31 this year to submit their applications. More RAS applications are expected once the borrowing limit takes effect.

Here are five things you need to know about the scheme:

1. How does RAS work?

If you earn $5,000 a month, the RAS would apply to any unsecured debt in excess of $60,000, assuming you meet all the eligibility criteria. So if you have a accumulated an unsecured debt of $100,000, you can pay $40,000 through RAS at a lower annual interest rate of 5 per cent – which is lower than 15 per cent to 24 per cent typically charged for unsecured credit.
Credit Counselling Singapore (CCS) which is administering the RAS, will work out a plan for you to pay off the excess debt of $40,000 in 96 monthly instalments over eight years.

2. How do I qualify for RAS?

Only Singapore citizens and permanent residents earning less than $120,000 a year and have net personal assets that are $2 million or less, are eligible. Applicants also need a good payment record with financial institutions.

3. How do I apply?

If all the requirements are met, applicants should mail the application form given to them by their financial institutions with a photocopy of the front and back of their NRIC, their latest credit bureau report and income documents to CCS.
The credit bureau report can be obtained at the Credit Bureau Singapore office or any SingPost branches. There will be a transaction fee of $6.42.
Even if multiple application forms and letters have been received from different financial institutions, only one is required. Applications have to reach CCS by Dec 31 this year.

4. Can I continue using my unsecured facilities if I’m under the RAS?

No. People under the RAS cannot use existing credit cards and other unsecured credit facilities. When your interest-bearing unsecured debt has been reduced to below 12 times your monthly income, you may approach your financial institutions to reinstate your credit cards and other unsecured credit facilities. The decision to lift the suspension on existing credit facilities will be subject to the discretion of the financial institutions.

5. Can I change the tenure or instalment amount if my income increases during the eight year period?

No. The standard terms and conditions of the RAS cannot be revised to take into account individual circumstance