Most Singaporeans are mindful of their credit cards as they usually believe that it could lead to snowballing debts. While it can be used to add convenience in your daily life, simple mistakes can lead to a lifetime of suffering if you are not careful.
According to Credit Bureau Singapore reports, the number of Singaporeans with outstanding credit card debts has been increasing. Around 5% of those who have unsecured loans have missed to pay $288,445,498 on time. This makes a significant increase of 74%from 2011. Overall, the number of debtors in 2011 had jumped by 32% in 2015. They are the 85,352 Singaporeans who missed at least two or more months of payments.
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MAS’s Tighter Limit on Credit Card Debt’
The Monetary Authority of Singapore (MAS) has created new guidelines for financial institutions with regards to approving credit cards and other unsecured credits. Unsecured loans do not require any asset or pledge for approval. The previous guideline mandates financial institutions to deny further unsecured credits to any Singaporean who failed to pay unsecured debts for three consecutive months which is worth 12 times the person’s monthly salary. This is to help Singaporeans avoid excessive debt which may lead them to further financial dilemma.
Currently, the limit is up to 24 times the monthly income of the Singaporeans, however, on June 2017, the limit will lessen to 18 times the monthly income. Soon, by June 2019, the limit will be once again back to 12 months’ worth of monthly income. While most of the population has been able to pay their debts, there is still a handful of Singaporeans who have outstanding debt beyond their capability to pay.
Making the Minimum Payment
Imagine that you have multiple credit cards, you maxed all of them. How are you going to escape? The usual solution for most Singaporeans will be to pay the minimum payment of each credit card (usually 3% or S$50), however, they tend to forget that the remaining balance will still be charged with 25% per annum. As long as you haven’t settled the bill, it keeps on rolling and snowballing.
This mistake can be prevented if you contact your bank as soon as you realize that you can’t pay the bill. While most people think banks will take advantage of those who can’t pay, banks actually are willing to work with their clients to give them other less painful options when settling their bills. One option can be the an interest-free balance transfer. You can transfer your balance to another card and since this is a new card, there will be no incurring interest fee for a certain period of time. This gives you around 3 to 12 months to work out a way to pay off your balance.
Missing the Payment Due Date
We all know that missed payments will cause late payment fees on top of the high interest rate, however there are still individuals who are unable to pay on time. Others make it worst and just leave it unpaid with the balance growing each day. If you purchased a G-Shock watch at S$768 and paid it on due date, there will be no interest rate charges, however if you missed your payment, you will be charged with either a late payment fee of 3% or S$50, whichever is higher.
S$768 + S$50 = S$818
Do not forget that you will also be charged with 25% interest rate per annum.
To avoid incurring charges, make both your actual calendar and create reminders in your phone. It will be better to pay your fees immediately or as soon as you can. To keep yourself motivated, remind yourself of the perks your credit cards comes with.
Having a lot of credit cards
With multiple credit cards, come multiple accounts to pay and a higher chance to miss your due dates of payments. Most Singaporeans even forget that credit cards have annual fees. If you have five cards, then there are five annual fees to settle.
It is recommended for you to have at least two credit cards as much as possible. Choose a card which gives cash rebates. These cards are usually charged with 6 to 8% and often capped at S$80 a month. Take out all the cards you have and analyze which one you usually use and which ones do not generate savings.
If you have outstanding fees blowing on your face, then a cash advance is going to sound as your lifesaver, however this is very risky as cash advance is usually charged with 28% per annum. To avoid this financial dilemma, have an emergency fund or get a personal loan which is changed with up to 4% interest rate. Another option is to use credit lines charged as low as 8.8% per annum.
Choosing a credit card because of the welcome offers
Credit cards are also known for freebies, rewards and gifts, however you should not make this as your main consideration when looking for a credit card. Choose a credit card which you will use on things you usually spend on such as on groceries, petrol and online shopping.
In need of cash to cover out of hand credit card debt? Get a low interest personal loan from Cash Mart.
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