Has the Monetary Authority of Singapore’s (MAS) implementation of the Credit Limit Management Measure impacted you? Worry not. We delve into the concrete steps to help you reduce unsecured debt.
Not too long ago, the Monetary Authority of Singapore (MAS) implemented the Credit Limit Management Measure to help borrowers avoid accumulating extra unsecured debts.
Primarily, your unsecured credit limit was reduced from 18 to 12 times of your monthly income from June 1, 2019. This essentially meant if your unsecured credit balance is more than 12 times of your monthly income, you’d face restrictions when utilising unsecured credit.
But what does this really mean for you as an earning individual? These restrictions make it harder for you to:
- Charge new purchases to your credit card
- Issue cheques or draw money from your unsecured credit line
- Pay recurring charges with your credit card
- Apply for new credit cards, unsecured loans, or increase your credit limit
All of these factors lead to affecting your credit utilisation in the long run. But it isn’t a problem that can’t be fixed. There are definitive steps to reducing your unsecured debts. Let’s delve into them.
1. Arm yourself with knowledge
Knowing is half the battle won. You will find the necessary data in Credit Bureau Singapore’s (CBS) credit report to come up with a comprehensive plan on reducing your outstanding balances. Your credit report is a record of your credit payment history compiled from banks and major financial institutions that helps you understand the totality of your debts. Once you’re armed with full knowledge of this, you’ll find yourself equipped with dealing with the next steps.
2. Plan your expenditure
It’s a cliched fact but planning your expenditure wisely, and in advance, will help you avoid piling on debt to a great extent. Should you still gather debt, keep a record of all your daily, weekly and monthly expenses, and fix your focus more on paying off all your debt.
3. Make all payments on time
A crucial factor in reducing debt is to make payments to your credit facilities in full and on time. Without fail. If you are unable to do so, try to maximise your payments and remedy any delinquencies or defaults.
4. Seek advice and counselling
A good bet is to go to experts when you’re unable to figure a way out on your way. Credit Counselling Singapore, for instance, specialises in helping people address their unsecured, legal, and consumer debt problems through education, credit counselling and facilitated debt restructuring. It’s worth considering counselling from them when you’re struggling.
5. Consider a Debt Consolidation Plan
You may want to consider signing up for Debt Consolidation Plan (DCP), a lesser-known option to help reduce your credit debt. It’s a debt management tool that allows you to combine all existing credit card debts and personal loans into a single loan with a lower interest rate. The loan is then repaid in automatic monthly payments, much like a personal instalment loan, for a period of up to 10 years.
Having a DCP helps if you are struggling with multiple payments across various financial institutions. Why pick a DCP? Well, mainly for three reasons — you will have a greater ease of payment with only 1 financial institution, access to lower interest rates, and, most importantly, greater control of finances under a disciplined fixed monthly repayment scheme.
But do bear in mind that some categories of unsecured loans are not included from DCP, such as joint accounts, renovation loans, education loan, medical loans, and/or credit facilities granted for businesses or business purposes.
To be eligible for DCP, you must meet the following requirements:
- You must be a Singapore Citizen or Singapore Permanent Resident
- Earn between $20,000 and below $120,000 per annum with Net Personal Assets of less than $2 million; and
- Have total interest bearing balances* in respect of unsecured credit facilities with financial institutions in Singapore exceeding 12 times the monthly income
* Interest bearing balances include amounts rolled over on credit card and balances outstanding on unsecured loans that accrue interest
You may approach any of the 14 participating Financial Institutions (FI) for a DCP. It will be up to any one of the FIs to make an offer. The first step to reducing debt or building credit score is to know what areas can be improved. Give it a kick-start by obtaining your credit report from CBS. A little investment can go a long way.
For more information, log into CBS or reach out to them at 6565 6363.
While you’re at it, if you’re looking for a personal loan and have done your homework about your borrowing limit, here are 3 of the best personal loans in Singapore for you to consider.
This article is originally written by Credit Bureau Singapore.
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Credit Bureau (Singapore) Pte Ltd (CBS) is Singapore’s most comprehensive consumer credit bureau that has full-industry uploads from all retail banks and major financial institutions. CBS assists members in their credit approval process and protects their credit profile, by providing objective and factual information collated from members.