Debt

I think it is becoming a trend now that you would surely see a couple of articles about debts in The Sunday Times. This really speaks volume of how prevailing the matter is.

For someone who is currently sucked into debt, it is really a good weekly reminder for me to get out of this financial spiral.

But even with so much publicity, there are still people who are "immune" to the debts they had incurred just to finance the lifestyle that they surely couldn't afford without credit.

To them, a 20K debt is a debt, a 40K debt is also a debt so why worry about it growing a little bit more?

It's really different school of thoughts. However wrong I feel that perception it, it is really hard to change other people's mentality.

Here are a few sentences that I lifted from the article which I hope could help these group of people make more sense of the picture:

1. It sounds absurd, but there are many people still paying for dinners they ate a long time ago, or for holidays almost forgotten.
2. A survey found that 7 per cent of credit card holders are still paying for spending indulged in the last Christmas. (So that's why I hate xmas)
3. Excessive debt ultimately restricts and narrows many of a person's life choices. It is something to remember while you are caught up in the frenzy of Christmas shopping.

And don't even think it's perfectly ok to buy at a special discount given to your credit card. It may be $10 off the $99 shirt but unless you pay it off on time, that $10 would only be offsetted by the interest incurs due to delayed payment.

Further delays, the interest may even EXCEED the $10 you so much wanted to save on in the first place.

Sucked into debt

Rollover card debt pushes past $2.7b in October as users spend
first, pay later

By Leong Chan Teik
Dec 18, 2005
The Straits Times

AFTER he graduated from the National University of Singapore,
Mr Lincoln Teo decided work could wait.

The year was 1993, a time of rosy employment prospects, so why not go
for a holiday first?
He decided to backpack throughout Europe.

For
that end, he had set aside $4,000 from commissions for securing advertisements
for his school magazine, with his father's help.

To make the trip more extensive, he borrowed $4,000 using a bank
overdraft targeted at fresh graduates.

During his three-month holiday, he spent all $8,000, even though he
went for the cheapest options when it came to food, accommodation and transport.
That averaged $70 a day, a fairly modest sum in Europe, after deducting $1,600
for airfare.

Still, it was the biggest hole he had ever burnt in his pocket.

On returning to Singapore, he found a job almost immediately, as he had
expected - first, as a relief schoolteacher and, shortly after that, as a
marketing executive.

He could not recall exactly when he repaid in full the $4,000 debt plus
interest of between 4 per cent and 5 per cent a year.

That was because his salary flowed into that overdraft account every
month, and there were outflows when he bought shares.

'Credit is a powerful tool for immediate gratification,' says Mr Teo,
now 36 and a vice-president of portfolio management in a bank.

Indeed, that is how it has been for people whose hyper-consumption has
helped push the total amount of rollover credit card debt in Singapore to $2.719
billion as of October. Credit is rolled over when a card holder pays the minimum
allowed every month but leaves the rest unpaid.

Except for September, when the figure touched $2.743 billion, this group of
credit card holders in Singapore are now the most indebted ever, statistics from
the Monetary Authority of Singapore show.

This October's figure is 3 per cent higher than the figure in October
last year, which in turn was 2.8 per cent higher than the figure in October
2003.

It sounds absurd, but there are many people still paying for dinners
they ate a long time ago, or for holidays almost forgotten.

Singaporeans are finding new ways to use debt and repay it ever so
slowly, if at all, which helps explain the growth in rollover credit card debt
from $784.6 million 10 years ago to $2.7 billion today.

In Australia, a survey found that 7 per cent of credit card holders are
still paying for spending indulged in the last Christmas, says Mr Ben Fok, a
director of wealth management at ipac, a financial planning outfit.

In Singapore as well, official figures suggest that it is a relatively
small percentage of people who are responsible for the $2.7 billion in rollover
debt.

About 17 per cent of credit card debt had been rolled over for more
than one month as at the second quarter of this year.

Creative credit

WHILE debt has commonly been used to pay for shopping sprees, people
are using credit in ways that were less common, say, 10 years ago, to fund a
lifestyle that is out of whack with their income.

Like going off on a holiday on borrowed money. Like using an overdraft
to buy a big diamond ring for a bride, says a financial planner.

Like drawing cash from credit cards to gamble on horses and soccer,
says a Sunday Times reader who sent an e-mail last week seeking advice for a
friend who owes $30,000 in card debt.

Or making a down payment on a car, and rolling over the debt.

Or paying for a lavish wedding on top of a home renovation.

These are big-ticket items that some people, or their parents, feel
they must have on a grand scale, ignoring the possibility of disastrous
consequences.

Take, for example, Matthew (not his real name), who spent $90,000 to
renovate his HDB flat and to host a wedding reception.

When he had exhausted his savings, he ran up debt using 10 credit cards
and credit lines. He says money was sometimes so tight that right after he had
paid the minimum monthly sum on a card, he would withdraw the same amount from
the same card.

He sought help from Credit Counselling Singapore (CCS) to negotiate a
repayment plan with his bank creditors, and avoid a potential bankruptcy
petition.

He agreed to have all his credit lines cancelled, live within his
means, and repay $1,200 a month over the next five years, says CCS assistant
director Tan Huey Min.

To sane folks, it would also seem laughable and even outrageous that
some home buyers use credit cards to buy a home.

But that is indeed the case for some.

They have a mortgage and a renovation loan - and credit card debt that
was used to meet the down payment for a condominium unit.

And some of them have been unable to cope with that very expensive
debt, and have turned to CCS for help, says Ms Tan.

When the cash down payment required for resale HDB flats rose from 2
per cent to 4 per cent this year, some home buyers used several credit cards to
pay for the down payment, says Mr Leong Sze Hian, the vice-president of the
Society of Financial Service Professionals.

Mr Teo, the banker, says some small-time businessmen roll over their
credit card debt or use the cards for cash advances to tide them over until they
receive payment for their goods or services. 'Some of them think it's cheaper
than going to loansharks.'

If people are using cards more widely, and in new ways, it is partly
because, at every turn, financial institutions are marketing a wide range of
credit options.

'Years ago, banks were called thrift organisations and savings &
loan associations. Today, banks enthusiastically encourage people to spend,
spend, and spend,' says Mr Fok of ipac.

'We often receive beautiful brochures from banks with messages such as,
'You are in for a very merry Christmas'. Lift the flap and you'll find an offer
for a credit facility of up to $100,000.'

Credit cards are the main form of unsecured loans. Other forms were spawned
in the second half of the 1990s: Ready Credit, Cashline and the like, which
charge interest of over 16 per cent a year.

A more recent innovation is the zero-interest instalment scheme, under
which you pay for purchases such as furniture and holidays with your credit card
over 12 months typically.

Apart from overspending, the downside is you cannot cancel your cards until
you have paid off every cent, says Mr Leong. 'If you have multiple purchases
made over a period of time, you can be locked in for years!'

So, when it is time for the annual fee ranging from $36 to $180 per
card to be paid, you cannot just cancel the cards.

Debt-free card holders, on the other hand, can do so unless the annual
fees are waived at their request.

They can easily obtain a new card from another issuer for free for a
year.

Beyond such examples, excessive debt ultimately restricts and narrows
many of a person's life choices. It is something to remember while you are
caught up in the frenzy of Christmas shopping.