Schemes that help you manage repayment

New borrowing limits should not affect average consumers if they are prudent and not heavily indebted, says ABS director Ong-Ang Ai Boon.
New borrowing limits should not affect average consumers if they are prudent and not heavily indebted, says ABS director Ong-Ang Ai Boon.
CCS general manager Tan Huey Min says it has assisted with over 14,000 debt repayment plans under the DMP since 2004.
CCS general manager Tan Huey Min says it has assisted with over 14,000 debt repayment plans under the DMP since 2004.

More than 13,000 people in Singapore are paying off their unsecured debts through debt repayment programmes with banks or Credit Counselling Singapore (CCS).

Of this total, 2,617 people are on the new Debt Consolidation Plan (DCP), which was rolled out by 14 financial institutions in January.

CCS, which offers the Debt Management Programme (DMP), was helping about 10,750 people with its scheme as at the end of last year.

CCS general manager Tan Huey Min says the charity organisation has assisted with over 14,000 debt repayment plans under the DMP since 2004, with some already completed successfully.

BORROWERS' PROFILE

The latest CCS statistics, covering 2014 to last year, indicate that seven in 10 people under the DMP are males. The 35-44 age band has the highest number, or 40 per cent, of debtors. Nearly two-thirds of debtors are Chinese. About 84 per cent of those under the DMP earn up to $60,000 a year, with monthly incomes averaging $3,359. The average debt size is $100,559.

A similar consolidated statistical breakdown of DCP customers from the Association of Banks (ABS) is not available.

However, Maybank's DCP customer profile showed the trend is consistent with that of CCS, in that men tend to get into debt more than women do. By occupation, the average DCP debt size ranges from $67,055 (blue collar) to $100,633 (manager). About 62 per cent of DCP clients saw monthly payments drop 40-50 per cent after going on the DCP.

The financial institutions say these debtors typically carry six or seven credit cards from various banks, and have a habit of spending on credit. This means they tend to make purchases that are beyond their means.

Often, they pay only the minimum sum on their credit card bills and roll over their credit card balances from month to month.

Interest is charged on these balances, as well as on any subsequent purchases they make. The outstanding debt snowballs as a result.

REDUCING UNSECURED CREDIT LIMITS

The debt repayment programmes offer welcome relief to borrowers who find themselves in despair as they struggle under a mountain of debt. The DCP rollout is also timely as borrowing limits have been tightened industry-wide.

Since June 1, the limit on how much outstanding interest-bearing debt you can owe on credit cards and other unsecured loans across all financial institutions has been cut to 18 times your monthly income for three straight months.

This will be reduced further to 12 times your monthly income by June 2019 - half the limit of 24 times your monthly income in 2015.

Unsecured debts are those with no collateral, such as red ink run-up on credit cards, personal loans or an overdraft. The limit applies to interest-bearing balances on personal unsecured credit facilities. Excluded are secured loans such as property and car loans, as well as unsecured loans for business, medical and education spending.

With the reduced credit limit, bank customers with outstanding unsecured debt in excess of 18 times their monthly income will not be granted any new credit.

WHAT THE FINANCIAL INSTITUTIONS SAY

ABS director Ong-Ang Ai Boon says the new limit will not affect average consumers if they are prudent and not heavily indebted.

"A solution available to them is the ABS' Debt Consolidation Plan, under which they can consolidate all their unsecured credit facilities across financial institutions with one participating bank. This will help them reduce their monthly repayment obligations, and help them pay down their debts progressively over time."

"Other debt repayment solutions - such as bilateral repayment plans facilitated by their creditor financial institutions, as well as plans offered by CCS - are available to borrowers who are not eligible for the DCP," said Mrs Ong.

ABS encourages affected borrowers to proactively seek repayment plans, as it believes such schemes give them greater financial flexibility and help them reduce their debts gradually.

The DCP is for Singapore citizens or permanent residents with interest-bearing debt exceeding 12 times their monthly income. They must earn between $20,000 and $120,000 a year, and should not hold more than $2 million in personal assets after subtracting any liabilities such as their outstanding debt, said Ms Choo Wan Sim, who heads cards and payments for Singapore at United Overseas Bank.

The ability to monitor all their outstanding debt in one place makes it simpler for DCP customers to track their situation. The DCP also enables them to pay off their debt over a set period using a consistent interest rate.

"This enables the customer to manage the repayment of debt more easily, as they will not need to worry about different interest rates and various payment deadlines on multiple credit card debt and credit lines," said Ms Choo.

Mr Matthias Dekan, who heads customer value management at HSBC Bank (Singapore), said that, depending on the loan amount and tenure, customers typically end up with lower interest payments.

"In most cases, they would also be granted a longer repayment tenure, and this would mean a lower monthly payment. For those already in debt, it would make a lot of difference as it would free up limited funds to pay for some of the critical day-to-day expenses," he said.

Once a customer is on the DCP, he will no longer have access to existing or new unsecured credit facilities, he said. This helps prevent customers from sliding deeper into debt.

"Most importantly, the DCP is designed to instil greater discipline in repaying debts as customers would have to deal with just one financial institution and one repayment deadline," noted Mr Dekan.

Mr Vikas Kumar, who is head of cards and personal loans at Citibank Singapore, pointed out that the DCP helps customers repay their debts in a structured manner by breaking up the total amount into smaller and manageable instalments over a period of between three and seven years.

On top of this, DCP customers are granted a credit card with a credit limit equivalent to a single month of their income to cater to daily needs. At Citibank, DCP customers receive complimentary protection with insurance coverage of up to $160,000, subject to terms and conditions.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on July 02, 2017, with the headline 'Schemes that help you manage repayment'. Print Edition | Subscribe