The number of borrowers drowning in red ink has fallen and is set to dip further with a new plan to help people pay off debts more easily.

It is aimed at those with unsecured debt - essentially loans with no collateral, like those racked up on credit cards or overdrafts.

The numbers affected are not a large proportion. Recent Monetary Authority of Singapore data said that about 4 per cent of borrowers with this sort of debt had loans exceeding 12 times their monthly income, down from 5 per cent in May 2015.

But the pain from this sort of red ink can be considerable and take a heavy toll on individuals and their families. Hence, the new plan unveiled by the Association of Banks in Singapore on Tuesdayis a welcome move.

A person's unsecured debts held with any of the 14 participating financial institutions can be consolidated with just one institution, making for a simpler repayment process that can reduce fees and other costs.

The plan is aimed at helping people who will be affected by upcoming tougher rules on borrowing limits. Starting in June, unsecured debt cannot exceed 18 times a borrower's monthly pay. In June 2019, that drops to 12 times - half the limit of the 24 times of monthly income now.

It is a positive move that the industry is taking active steps to give borrowers another, perhaps more manageable, choice of repayment, so those with a heavy debt burden should embrace the new plan before it is too late.

The initiative is also timely as interest rates have risen and are expected to continue to rise this year, a move that will add to the repayment burden.

However, it is possible that banks are more likely to choose to take on those who have been making payments regularly, because these good payers present less risk for the bank that has to take on the entire debt load after loans are consolidated. This raises the risk that those who are most in need of help in restructuring their finances may still face a delay in getting it.

Rachael Boon