Rolling over into a financial nightmare

This story was first published in The Straits Times on Sept 15, 2013

An unexpected event, traffic accident or sudden illness can easily set you back thousands of dollars and for the uninsured, turning to the plastic is all too tempting.

Even planned expenditures can strain your budget while the ease of online transactions means making reservations for costly holidays can be dangerously simple.

These can all add up to huge credit card debts that could prove to be a difficult to get out from under - if you are not able to clear the full sum.

A cursory check of credit card bills shows that banks impose a finance charge of about 24 per cent a year on the outstanding balance.

If you do not pay your bill on time, you need to factor in the additional late payment penalty that ranges from $50 to $60.

So before deciding to roll-over your credit card bill, make sure you know what you are getting into.

Credit Bureau Singapore data shows that the average amount of unsecured personal loan incurred by a consumer is $12,678.

Assuming that the amount of outstanding loan is $12,000, and if you make only the minimum payment each month - which in this case is 3 per cent of the amount owed or $360 - a whopping 22 years will be needed to finish paying off that initial loan.

If no payment is made at all, your bill will balloon from $12,000 to $13,000 within just six months.

Credit Counselling Singapore (CCS) spokesman Lim Cheng Boon says that when a person who does not save ends up in that situation, it is hard not to borrow to pay off their debts.

"After missing one payment, it's very tough for them to catch up. What can they do but apply for credit?" he notes.

CCS has identified two main causes of indebtedness - job-related and overspending.

Job-related causes include retrenchment, a drop in salary or a spouse losing his or her job.

Overspending on your income could be caused by holidays, entertainment or having a car when you are unable to afford it.

Mr Lim says: "Almost all of the debtors we see have debt due to more than one cause."

Debtors and industry players The Sunday Times Invest spoke to also said it is a common practice to use credit to pay off other debts.

Mr Lim adds: "They do not want other people to know they don't have money. If you get money from the bank, they won't ask you why, unlike friends or family."

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This story was first published in The Straits Times on Sept 15, 2013To subscribe to The Straits Times, please go to