The number of people with sizeable unsecured debts has dropped sharply in the past two years, thanks to concerted efforts by the Government and financial institutions.

Unsecured debt includes credit cards, overdrafts and personal loans that have no collateral. Such debt usually attracts higher interest, so it should be avoided or paid off quickly.

Take credit cards. The interest imposed on an outstanding balance is usually more than 24 per cent, so an initial debt can easily spiral uncontrollably into a substantial amount and get borrowers into trouble.

A cash-strapped debtor could turn to borrowing to make repayments or to pay for living costs. This in turn will create bigger debts and cause distress. The situation worsens if the debtor loses his or her job.

Latest figures show that the number of such borrowers and the amount they owe have dropped sharply, indicating that efforts to rein in the problem of unsecured loans appear to be paying off.

While this is encouraging, there is still room for improvement.

In March, there were 32,000 borrowers - who account for 2 per cent of total unsecured credit users - with unsecured debt of more than 18 times their monthly income. Collectively, they owed $4 billion, which is 0.2 per cent of total banking assets.

Besides offering counselling and debt repayment programmes, the phasing in of limits on the total amount of credit card and other unsecured debt they can hold will go a long way towards curtailing the problem.

Efforts began in June 2015. The limit then was 24 times a person's monthly income for three months in a row, but on June 1 this year, that was slashed to 18 times the monthly income. It will be further cut to 12 times the monthly income from June 1, 2019.

The industry-wide debt limit is a progressive move for the market as it forces individuals to be more disciplined and manage their finances better.