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SAGE Talk: Credit Cardholder Behaviour

Reminiscences of CCS first Chairman. This is the sixth of a series of articles by Mr Kuo How Nam (founding member and former Chairman of Credit Counselling Singapore). How Nam’s articles are scheduled to be published on first Fridays of the month.

Credit cards offers great convenience.  There is no need to carry cash to make purchases, especially useful when travelling abroad.  You get an interest free payment period since payments are only due 2 – 3 weeks after the month end statements.  With 1.9 million individuals holding 5.6 million credit cards, card issuers have rolled out all sorts of incentives to encourage people to use their cards.  You will get purchase points, cash charge backs, shopping, and dining deals etc.

The dark side of credit card usage is the credit available to defer full payment.  Cardholders are given a credit line, presently up to 4 months monthly income if their annual income is between $30,000 to $120,000.

The cardholder has the option of paying only the minimum monthly payment which is presently 3% of the month end balance.  Interest charges of up to 30% per annum will apply to each  transaction made using the card thereafter.  The cardholder loses his/her interest free float and interest is calculated  on a daily basis and charged on their next monthly statement. Late payment and over limit charges may also apply.

I estimate that about 30 - 40% of cardholders do not pay their credit card bills in full, and this figure will vary over time, going up after festive seasons and even after events like the World Cup with increased interest in sports betting.

Data from Monetary Authority of Singapore (MAS) (see reference) show that cardholders spent about $65 billion over the whole of 2021 and the rollover balance (referring to the balances that are subject to interest charges) stands at about $5.5 billion (as of second quarter of 2022). Card issuers have written off around $235 million in 2021, giving a charge off rate of around 4%.

Typically, there are two groups of card debtors.

The first is what I would call casual debtors.  These individuals usually pay in full but may experience some temporary liquidity difficulty and fall back on their credit card lines to tie them over until the problem is resolved, and they have the funds to repay in full.

The second group are credit card revolvers.  These individuals are unable to repay in full and continue to pay the interest charges over a protracted period.  In a way, they are “financial zombies”, being unable to repay in full and being charged interest on their outstanding balances.  They are not financially “dead” since they are still making payments but also not quite “alive” being highly stressed and constantly worried about their financial situation. They usually resort to borrowing more to pay off creditors due to persistent their collection actions. This makes their overall situation even worse.

The lesson to be learnt is to be wary of accumulating credit card debt to the point where making payments become unmanageable. While one can tap on their credit lines in dire circumstances and pay back the outstanding immediately, it is recommended to always have an emergency fund of about 3 to 6 times monthly expenses for such situations.

Debt creep is a real phenomenon where credit card debt builds up slowly over time until they become unmanageable.

Reference: Monetary Authority of Singapore (2022). Credit and Charge Card Statistics, retrieved on 1 December 2022.

If you are facing a debt issue and would like to seek assistance from CCS, attend our weekly Debt Management talks (conducted both over Zoom and in-person at our office), where you will learn more about what to do when, how to communicate with creditors, what are the common collection actions creditors can take, what are the various debt settlement options are and what is the CCS Debt Management Programme.Click here for schedule.

After attending the talk, you can submit a request for one-to-one credit counselling. Details on the counselling session and instructions on how to arrange for an appointment will be explained during the talk.

CCS also conduct monthly Facebook Live webinars on topics such as prudent financial management and responsible use of credit. Follow CCS Facebook page to stay updated of our webinars and events.

This article was contributed by Kuo How Nam.

Published 2 December 2022.

The opinions expressed in this article are those of the author, and do not necessarily represent the views of Credit Counselling Singapore. The content on this website is for general information only. It is not intended to constitute or be relied upon as financial or credit advice. You should consult a qualified financial consultant if you require financial advice.