Key Points
• Credit card rollover balances hit a record high of 7.9 billion in the third quarter of 2024. A DBS spokesperson said this reflects a return to normalcy as people spend more following the Covid-19 pandemic. A large proportion of the spending was on dining, followed by essentials like insurance, medical and groceries. Others use credit cards to relieve stress, shop online, make downpayments for property, trade in shares or pay for their children’s overseas education.
• Credit card delinquency rates remained stable. People aged 40 to 54 have taken steps to reduce their credit card debts, while people between 21 and 39 are chalking up more debt. This may be due to them being unaware of the extremely high daily compounding effect of interest charges and late charges.
• The problem may be exacerbated by the fact that some borrowers choose to only pay the minimum sum (or worse, do not even pay the minimum sum), essentially trapping them in a debt cycle, borrowing money that one cannot pay back.
• Card holders facing repayment difficulties can explore a balance transfer with their banks, but that comes with a one-time processing fee. People in this situation are wedged between clearing their debts and saving for the future. Basic budgeting and spending within one’s means can help to alleviate their problem.
Implications
• Credit cards are a double-edged sword; use it well (ie paying the bills on time) and it can help greatly with the generous promotions that financial institutions put out to consumers. But spending money before you have it is the first step onto the slippery slope of debt. One needs to be mindful of all the cards that one owns to be able to track expenses and pay the bills on time.
• Digitalisation of payment platforms brings about great cashless convenience. Therein lies the danger of consumers losing track of their spending and forgetting to pay their bills, especially when they have multiple cards to leverage on various points and miles promotions to assuage the pressure of inflation on lifestyle needs and wants. Proper budgeting needs to be in place to ensure one does not spend more than they can pay back, hence avoid being trapped in a debt cycle.
• When one has difficulty repaying his debt and has other goals like saving for the future, the top priority should always be to clear the debt first as the interest and late charges are not to be reckoned with. Seeking professional help on financial planning might prove beneficial in such cases.
If you are seeking for professional advice on this, don’t hesitate to DM us now!
Information accurate as at 5 Jan 2025. Representing Legacy FA Pte Ltd. This advertisement has not been reviewed by the Monetary Authority of Singapore.
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