SAGE Talk: Overspending

Reminiscences of CCS first Chairman. This is the tenth 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.

Overspending a major cause of credit card debt.

The biggest cause for debt distress for individuals coming to CCS is overspending.  Overspending is spending more money than you earn.  The excess consumption is funded from credit card lines which is often treated as a second income.

Many consumers unfortunately use the minimum monthly repayment required by credit card companies to gauge affordability.  This is pegged at 3% of the outstanding month end balance.  With interest now at 28%, there is very little principle repaid with each repayment.  Debtors forget that being in debt means using tomorrow’s income to pay for today’s spending and debts can be crushing if income does not increase or worse declines.  Debt creep occurs when the consumer continues to use his credit card to fund his expenses.

Why do consumers continue with this destructive behavior? 

Lifestyle maintenance is one big factor.  The consumer can be in a high spending social group.  This could mean nice cars, frequent outings at bars and restaurants, overseas trips and fashion accessories.  So the individual goes into debt to keep up with the group otherwise he feels left out or inferior.  This can apply to his peers, workmates, relatives or even neighbours.  One must remember that it is easy to see what people spend but very difficult to know how the person finances his lifestyle.   I have seen instances of people featured in high society magazines attending parties, decked out in high fashion gear, coming to CCS for debt restructuring. 

Overspending occurs because of emotional and psychological factors.  Shopping therapy is very real and people spend to feel good or because they think they deserve it.  Feeling depressed, they treat themselves with shopping binges or expensive meals or holidays to make themselves happy.  There is a lack of self-control and a tendency to impulsive buying and splurging.  The happiness however only last a short while.  Many have buyer’s regret when what they purchased fail to produce satisfaction.  Many debtors have depression and regret when bills are due.

I also find that many debtors have unrealistic expectations.  Many people think they deserve to be happy.  

After all, they have done all the rights things like getting good academic results, going to a good university, landing a good job, earning a respectable salary etc.  And so they deserve the good things that life can offer them.  They often under-estimate the income required to maintain the lifestyle they want.  The mantra is Enjoy Now and Pay Later.

This is exacerbated by overconfidence.  Many debtors tell me they had great confidence that their income and bonuses will increase over time and this would allow them to pay off their accumulated debts.  They are not bothered by their accumulation of debts, confident in their ability to pay these off in the near future. 

Credit cards unfortunately make it so easy to give way to many temptations.  Even staying at home can be dangerous if boredom leads to online shopping binges. 

So what can one do?

Individuals need to distinguish between wants and needs as a first step.   There are things which are necessary and others that are not.  Drawing up a monthly budget to reflect one’s objectives is very important as it sets out the goals to be achieved.  Keeping track of the expenses is also vital to ensure one does not go astray during the month.  Make sure you have some savings to take care of unexpected events and emergencies that will crop up from time to time.  Do not overestimate earning capacity and stability of income.  Dual income couples can be hit severely when a spouse suddenly become u unemployed and income and CPF contributions fused to meet housing loan instalments dry up. 

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 and 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 7 April 2023.

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.