The Secret life of a Credit Card Revolver

Easy Credit, Hard Repayment

(The following is based on a real life event)

Eugene (not his real name) is a 26 year old male Singaporean. He holds a 9-5 job and earns $2,500 a month as an executive in a MNC. Having worked since completing his local diploma, Eugene found his career opportunities and wage growth to be severely limited by his lack of a college degree, his job roles have mostly been in customer service & admin positions.  On a personal level,  Eugene is a avid soccer fan who enjoys placing small wagers on EPL games on weekends.

Earlier this year, Eugene suffered a serious fracture in a soccer game when he was between jobs and was without income for 6 months.  A combination of prolonged bad timing & bad luck wiped out the little savings Eugene had.  After liquidating all his insurance & investments,  he still found it hard to cover his day to day expenses and started to borrow on his credit card as a stop gap solution to his cash flow problems. As Eugene’s parents are both low income manual workers,  he did not want to place any financial burden on them.  At the same time, he did not wish to borrow from friends for fear of embarrassment. His last resort was banks.

Eugene learnt about the power of compounding interests the hard way. What started out as a few thousands of credit card debt steadily snowballed to tens of thousands.  He was committed to get his life back on track by finding stability in his current job position, as well as eliminating his gambling vice. After working through his personal budgeting, Eugene determined that by cutting down on the bulk of his lifestyle expenses and by living like a monk over the next 3 years. He will be able to fork out $1,000 a month to repay his mounting credit card debt.

Debt Repayment Plan
(Balance as at Dec 2012)

Creditor	Outstanding Balance	Interest Rate	Monthly Payment	Total Interest Paid	Months to Pay Off	Month Paid off
Bank C Credit Line	$5,000	17.28%	$100	$1,539.48	29	May-15
Bank C Term Loan (0% installment plan)	$900	0.00%	$100	-	9	Sep-13
Bank C Credit Card	$4,500	24.00%	$200	$1,532.83	29	May-15
Bank U Credit Card	$4,000	24.00%	$200	$1,159.51	26	Feb-15
Bank S Credit Card	$6,050	24.00%	$200	$2,854.94	33	Sep-15
Bank S Credit Card	$3,600	24.00%	$200	$907.89	23	Nov-14
Total:	$24,050		$1,000	$7994.65

Observations:

·                  It will take close to 3 years to fully clear his debts. Even then, he would have no cash savings.

·                     The time taken to clear off his debts may be further extended if there are any upcoming contingency spending required (e.g parents face retrenchment? )

·                     The total interest paid on his cards is $7994.65. In the course of repayment, he will be paying more than 3 months of his current salary to banks to service the interest.

·                     The debt repayment plan is based on assumptions that he remains employed full time and in good health. In reality, consistency is not easily achieved.

·                     Eugene's most practical way to get out of debt faster is to consider working in part time jobs on weekends to generate another source of active income.

Summary:

In 2011, the rollover balances in credit cards among Singapore consumers is in excess of $4.5 billion.
Most banks charge an interest of 2% on balances. Bank deposits in Singapore do not earn even 1% interest, however unsecured loans like credit cards accrue interest up to 24% per year. Talk about interest income!
Regardless of whether the debt is accumulated via vices such as gambling due to long term unemployment, hospitalizations etc, one should always aim to escape the bondage in as short a period as possible.

Its unfortunate that there are many people  like Eugene who are among us. They may appear to do fine on the outside but on the inside, they are drowning in debts. In Eugene’s case, his long term debt exposure has caused him to constantly lose focus at work. He is of marriageable age but he does not dare to find a partner as he is concerned of she will view him if his financial troubles are found out. As he is living from paycheck to paycheck, he often have to make various trips to cash deposit machines & payment kiosks to make payments for different banks to avoid the various late charges imposed by banks. Due to his low income, his interest payment alone is more than 25% of his take home pay and often he has to reject invitations from his friends for social gatherings, parties as well as give up on overseas holidays to tighten his wallet.  With all the sacrifices that he will be making,  Eugene hopes that his efforts will pay off so he can have a 2nd chance in life.

Readers facing personal debt problems can contact Credit Counselling Singapore (CCS) to seek their advice and assistance:  http://www.ccs.org.sg/

Quote: “When a man is in love or in debt, someone else has the advantage." Anonymous