If you are still receiving paper notifications for your credit card bills, you would have noticed some changes in the wordings. Have you wondered what is it all about? Is it simply some random change to borrowing terms or will they really affect you? It will affect you if you have credit card debt, are paying off any loans, or have any installment payments. In this issue, we examine the changes introduced by MAS regarding unsecured loans.
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With effect from 1 June 2015, MAS will limit the total amount of unsecured credit facilities (credit cards and personal loans) to 24 times the borrower's monthly income. This limit would then be gradually lowered over 4 years to grant borrowers more time to repay their debt.
In summary, the borrowing limit will be introduced as such:
• 24 times monthly income from 1 June 2015
• 18 times monthly income from 1 June 2017
• 12 times monthly income from 1 June 2019
For example, an individual with a monthly income of S$10,000 and a total unsecured borrowing of S$240,000 (24 times monthly income) would have 4 years to reduce his borrowings to S$120,000 (12 times monthly income).
For individuals who are unable to pay down their borrowings, there will be a new debt repayment solution known as the Repayment Assistance Scheme (RAS). This is a scheme where borrowers will be able to repay their debts over a period of time at a much lower interest rate of about 5%.
Secondly, if you have credit card debt, it is mandated that your bank informs you of the following 2 scenarios in your monthly statement:
1. How long it take to repay your debt if you only pay the minimum every month
For example, if you have a credit card debt of S$5,000 and you only pay the minimum of S$150 per month, your credit statement will reflect that it takes 56 months to pay off the debt with 24% interest accrued.
2. Banks must inform the borrower how much their current debt will snowball to if they make no repayment in 6 months.
Using the same example of a credit card debt of S$5,000, your current credit card bill will include another column to show that your debt will snowball to S$5,630.81 if you skip the payments for 6 months
Lastly under the changes by MAS, banks are not allowed to grant new credit lines/ facilities to borrowers if they have not paid their credit card bills for 60 days or more!
For more information, you may refer to the following FAQ: http://www.mas.gov.sg/FAQs.aspx
The best way to manage debt is not to get into one in the first place. Excessive financial stress can be a traumatizing experience for an individual or a family. In closing, we would like to offer you 2 great tips on saving money and managing debt.
Tip Number 1: Think in terms of Percentage, not Dollars saved!
If you make the effort to purchase a Groupon deal to dine in a restaurant, the savings can be significant. There are quite a few deals which only require you to pay $35 for a dining experience worth $50. This is a whopping 30% savings compared to dining at the same restaurant without the voucher.
Tip Number 2: Think many times before you make that purchase!
Many of us are guilty of buying impulsively, as a result, we have many items at home that we do not even use at all. This is an especially common for holiday goers who purchase many items on their trips and never used them.
Finally, if you require financial coaching to reduce your debt, feel free to approach your personal Financial Services Consultant.
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