From The Straits Times    |

When I was 25, I went a year without paying back my credit card balances in full. Back then, I was a year out of university and had just received my first credit cards. It was a painless process: One bank sent representatives all the way to my office to help me and my colleagues fill in the application forms and photocopy our identity cards.

They also came armed with colourful brochures that made it impossible to select just one card. I was planning on a basic card that would give me cash rebates, but I found myself entranced by a snazzy card that promised discounts at trendy shops and a third boasting travel perks.

As a fresh graduate, the idea of having a wallet filled with many credit cards held an exciting grown-up fascination. So I applied for all three cards, and others from different banks soon followed.

There was the ladies’ card that offered a special rate for spa and facial packages; the department-store tie-up that could get me in to special preview sales; the card for petrol; the card for supermarkets; the card that gave me discounts at my favourite restaurant.

Soon, I was holding on to eight or 10 credit cards from at least four banks. Despite my entry-level income, I had no problems obtaining any of these cards, nor did any bank ever ask me about other cards I held or debts I already owed.

In fact, one bank even threw in a personal credit line with my credit card application. When I protested, the bank officer said: “Just take first – if you don’t want, can cancel, no problem.”

None of this would have been a problem if I had been a prudent spender. But just as I had been drawn to filling my wallet with shiny plastic, I wanted to fill my wardrobe and stomach with nice things as well.

Having credit cards made it ridiculously easy to rack up spending, since a $100 pair of shoes didn’t look so different from a $190 one on a credit card statement. With multiple cards, each bill was also bite-sized: $220 here, $450 there, $1,000 on the card to which I had charged my two-week Greek holiday.

My income was barely enough to cover my spending, especially since each bill came with a fat pamphlet of new credit card promotions.

I could have paid all my debt from my savings, but I didn’t want to go down the slippery slope of using my cash cache. Instead, I would parcel out my monthly pay cheques so each bill was partly paid, and roll over the unpaid portions. And even as I tried not to look too closely at my growing interest payments, banks kept sending more card offers and raising my credit limits.

This was untenable. After a year, once “free” cards started charging annual fees and I couldn’t cancel them as I hadn’t paid up the debts in full, especially those I had used to service monthly instalment plans for some purchases. It was also hard to keep track of how much I had spent in all, since I was using each credit card as though it was a separate bank account.

Fortunately, I had a way out. With my annual bonus that year, I paid off all my credit card bills – plus interest – and then cancelled all my cards except two. I was lucky to be able to escape my swelling credit card debt before it exploded. But many others are not.

More than one in three credit card holders here roll over balances, though the share dipped to 35.5 per cent in the first seven months of this year, from 37.2 per cent two years ago, the Credit Bureau said. But the absolute number of cardholders rolling over debt is rising, because more people now hold credit cards. As of July, close to 500,000 cardholders roll over debt, up from about 485,000 in 2011.

Credit counsellors say many people are in situations similar to mine: young, with not much income, funding a lifestyle they can’t afford. If they run into problems funding one credit card bill, they take out new credit lines, because they don’t want their family and friends to know they’re underwater. Indeed, when I was writing this column, I asked a dozen colleagues if they’d ever rolled over their credit card balances and all claimed: “Never.”

That’s why the new rules on unsecured credit from the Monetary Authority of Singapore (MAS) last week are both timely and an eye-opener. Such credit includes credit cards and personal credit lines. The MAS has laid down new debt limits: Borrowers cannot obtain new unsecured credit if their debt exceeds 12 months of their income, or if they have gone 60 days without repaying anything. But by the time borrowers run up against the limits, it may be too late.

The most debt I ever racked up was two months of income; I can only imagine the helplessness of owing more on credit cards than you earn in a year.

More important is a new rule that banks must review a borrower’s total outstanding debt before granting new unsecured credit or raising existing credit limits. Previously, banks had no access to this data, which may be why I kept being offered new cards as I struggled to pay off the old cards’ debts.

Equally key is the requirement that banks obtain consent from borrowers before raising their credit limits. Just last year, I was notified that my credit limit had been bumped up without my asking for it. My first reaction was: “Wow, I have more money to spend!” But then I remembered that it really wasn’t my money after all.

That thought has kept me safe from the growing temptations of easy money: aggressive marketing of credit cards and credit lines, instalment plans for big-ticket items, and quick loans from moneylenders and pawnshops. When it’s so easy to get access to credit, one really has to be self-disciplined not to overspend.

But like casino gamblers, people lured into the debt trap are often precisely those who find it hardest to get out.

 

Coach ID Lanyard
Now $75
Original price: $168
Shop Now
Jabra Elite 4 Wireless Earbuds
Now $88
Original price: $162
Shop Now
BaByliss Air Pro 2300
Now $63
Original price: $144
Shop Now
Abib Collagen Eye Patch
Now $19
Original price: $35
Shop Now