Easier credit may not lead to overspending
I REFER to the concerns expressed in the letters by Mr Leong Sze Hian and Madam Chan Wai Han on the proposal to lower the minimum pay for bank loans (ST, Aug 11).
The proposal to lower the minimum income requirement for personal credit from $30,000 to $20,000 may not necessarily lead to overspending.
Even now, those with annual income of less than $30,000 can borrow from other sources, such as GE Money, which charges interest rates as high as 18 per cent.
On the other hand, some banks offer loans at a much lower interest rate than 18 per cent. Hence, borrowers may actually gain from a better rate if the minimum-income requirement is reduced.
In addition, setting the minimum annual income at $30,000 denies a substantial majority of the working population access to unsecured credit granted by financial institutions. This group of individuals may have a legitimate need for unsecured credit which, at modest levels, they would be able to afford.
Also, even at this lower threshold, not all will have access to easy credit, as approximately 44 per cent of those employed full-time will continue to be ineligible for unsecured credit as they earn less than $20,000 a year.
Credit often has a negative connotation but the truth is that credit, while a double-edged sword, can be a useful instrument to manage our purchases. However, before taking up a loan to purchase something, we should ask ourselves the following:
Do we really need it? Or is it something that we merely want?
Are there cheaper alternatives?
Must we buy it now?
If we decide that it is something we really need, we should assess if we need to borrow to purchase it. We will be better off saving up and paying in cash to save on interest charges. Alternatively, we could take a smaller loan so that we do not overstretch ourselves financially.
We should look at the total borrowing costs, including the total interest payable. We should borrow only if we are sure that we can afford the loan payments.
Jag Kuo Soon Yong
I'm not sure where Jag Kuo was when the following article came out in CNA. With min income requirement at $30k, we already have 471 Singaporeans with $34mil. Somehow I can't think of anyway this figure will improve should the min income requirement be relaxed to $20k.
The truth is if you need credit to buy something you can't bloody afford, you shouldn't be buying in the first place. Even if it's on interest-free instalments, it will just make you think that you have surplus to spend on even more things.
Yes, you can blame it on the holders' ill-discipline but the card companies are surely also aware of it by coming up with ways and means to encourage you to swipe their Visa and Cashline.
Our ever materialism social conditioning doesn't help. We are still not taught money management in school.
So what makes Jag Kuo think lowering $30k to $20k would not lead to more overspending???
| Title | : | Credit counselling organisation helps Singaporeans restructure debts |
| By | : | |
| Date | : | 27 October 2005 1748 hrs (SST) |
| URL | : | http://www.channelnewsasia.com/stories/singaporelocalnews/view/175597/1/.html |
SINGAPORE : Not-for-profit organisation Credit Counselling Singapore has helped 471 Singaporeans restructure their debts amounting to some S$34 million.
But it said this could just be the tip of the iceberg, as rollover credit in Singapore has nearly doubled in five years to S$2.7 billion this year.
Forty-three-year-old "David" found himself drowning in debts amounting to S$200,000 five years ago, after his credit card bills snowballed.
He said, "My work involved a lot of traveling, so I spent it outside. My company does reimburse me, but my mistake was that I sometimes didn't pay promptly."
Not wanting to be declared bankrupt, he started driving a taxi part-time and with the help of credit counselling, restructured his debt with seven banks.
He now has some S$40,000 to repay and no longer carries a credit card.
David represents a typical debtor in Singapore -- male, between 35 and 45 years, with a family, and an average debt of S$72,500.
His average take-home pay is S$2,600, which means he would need 28 months to pay off his debt, at S$1,500, or nearly 60 percent of his income, monthly.
Besides ease of credit, car loans are an increasing problem, as they are cheaper to buy upfront but not cheap to maintain.
Credit counsellors call this group of debtors the "new poor" -- they earn more than the bottom 20 percent but after deducting their loan repayments, their little remaining disposable income sometimes puts them in dire situations.
Some can't downgrade their flats as they can't get another housing loan due to poor payment records.
Others have even pleaded with their banks not to deduct their loans directly from their salaries credited as they would not have enough to feed the family.
But while they acknowledge individuals are responsible for their debt, they say creditors should also go by an ethical code of conduct, and not make incessant calls.
Said Kuo How Nam of Credit Counselling Singapore, "The other practice we would like to see stopped would be letters from lawyers to the debtors' employers asking about particulars. This actually forces the debtor to reveal the state of his indebtedness to the company, and in many instances, companies are rather unhappy over that, and some people have been threatened with termination of employment."
A total of 940 people have been counselled since 2003, but some walk away with debts too huge to be restructured. - CNA /ct
No comments:
Post a Comment