Know Your (Credit) Limit
With effect from 1 January 2018, the Monetary Authority of Singapore (MAS) introduced a new unsecured credit measure known as the Credit Limit Management Measure. It is a pre-emptive move that helps individuals manage their debts early on to avoid becoming heavily indebted.
Measure Against Heavy Debts
As per this new measure, financial institutions will not be allowed to grant any increase in credit limits or any new unsecured credit facilities to borrowers under two conditions. One is if their unsecured debts exceed six times their monthly income, and second is if the increase in credit limits or new unsecured credit facilities will cause their total approved credit limit to exceed 12 times their monthly income.
Let’s take the example of one Suzie Tam. Let’s suppose Suzie earns S$5,000 a month and has outstanding debts of S$40,000 (eight times her monthly income). She will not be able to get any additional unsecured credit if her existing total credit limit exceeds S$60,000. Suppose her debts did not exceed her monthly income six times and her existing total credit limit was $50,000, she could still apply for new unsecured credit facilities or request for a credit limit increase until her total credit limit reached $60,000.
MAS made the decision to introduce this measure after the number of new borrowers who increase their unsecured debts to more than 12 times their monthly income continued to increase. This was despite the industry-wide borrowing limit implemented in 2015, which helped to reduce the number of borrowers who already had outstanding unsecured debts of more than 12 times their monthly income.
As the new measure only pertains to individuals who apply for a new credit facility or credit limit increase, they will be informed at the point of application if they are affected by the new measure. It is also worthwhile noting that secured credit facilities such as housing, motor vehicle, medical, education or business loans are excluded from this measure, and you can continue to apply for these credit facilities. You can also continue to use your existing unsecured credit facilities.
What You Can Do to Mitigate Your Debt
If you, too, are juggling outstanding debts, take the time to examine your options for managing them effectively. One way to do this is by applying for a Debt Consolidation Plan (DCP) to help repay your debts arising from unsecured credit facilities such as credit cards, overdrafts, and personal loans.
The DCP is a debt refinancing programme that consolidates all unsecured credit facilities across financial institutions with one participating financial institution. It is a good option for those who find themselves juggling several high-interest unsecured debts and who have difficulty meeting their payments. This scheme enables individuals to reduce their debts over time and repay their loan in automatic monthly payments for a period of up to 10 years.
Debtors who do not qualify for DCP can obtain information on the subject from Credit Counselling Singapore (CCS). CCS is a non-government-linked organisation and a registered charity that helps individuals with unsecured consumer debt problems through education and debt repayment plans.
Credit management doesn’t have to be complicated or confusing. It is all about prioritising what’s important to you. If you make repayment a way of life, you won’t have to face such a situation.
Simple measures can also go a long way towards avoiding debt altogether, such as checking your account before undertaking a large expense to make sure you have the means for the purchase, or creating a monthly household budget sheet.
