A disturbing trend this year has been the rise in credit card rollover balances, which stood at almost $5.6 billion at the end of September.
This is not far from the all-time high of $5.8 billion in February 2015.
The Monetary Authority of Singapore introduced curbs on credit card borrowings, beginning with a overall limit of 24 times one's monthly income, from June 2015 (Credit card curbs rein in borrowing binge; Dec 1, 2017).
Rollover balances, which used to grow by more than $300 million annually, have reduced since June 2015 as a result of the credit card limit curbs.
This year, however, seems to be an exception, with credit card rollover balances not showing any decline.
Rollover balances hit a low of around $5 billion in March this year, but has rebounded by 11 per cent to almost $5.6 billion in September.
This is perplexing given that there was further tightening of credit card limits to 18 times one's monthly income as of June 2017, which should have dampened credit expansion.
It appears that since March, more individuals have been rolling over their credit card balances despite last June's curbs. The reasons are not clear.
While they may be able to manage at their present debt levels, such individuals will face increasing pressure as interest charges are already at a heady 26 per cent per annum.
Also, come next June, they will be faced with more tightening measures as the overall limit will be reduced further to 12 times one's monthly income. This will affect their ability to roll over their balances.
Historically, credit card spending as well as rollover balances go up sharply during the year-end festivities.
The big increases in rollover credit so far this year will be amplified by the year-end festive spending.
We will probably see a new record for rollover balances if the present trend continues.
We urge consumers to be more prudent in their spending in the coming months and watch their credit card debt.
People in debt should seek help early as this will produce a better outcome for them.
Kuo How Nam
Credit Counselling Singapore