Credit Card Risk Essay

2564 words - 11 pages

14 February, 2011 Singapore 25
by Jared Heng

The increasing proportion of credit card defaulters among young Singaporean adults aged 21 to 29 should be closely monitored, Senior Minister Goh Chok Tong said in response to questions in Parliament from MPs who were concerned about credit card debts.
According to Mr Goh, who is also chairman of the Monetary Authority of Singapore (MAS), this group of people accounted for 13.4 per cent of credit card defaulters last November, an increase from 9.4 per cent in January 2008.
Young adults within the age group also contributed to an ...view middle of the document...
Feb 14, 2011
Key Message: There is increasing proportion of credit card defaulters among young Singaporean adults aged 21 to 29.
Credit card is a convenient mode of payment as it enables people to purchase the things that they like without using cash. It allows people to spend future money which is the reason why now there are many young adults having more than just one credit card. The easy availability of credit have resulted in young adults having difficulties in clearing their credit card debts. Especially young Singaporean adults aged 21 to 29, they accounted for 13.4 % of credit card defaulters last November. There is an increase from 9.4 percent in January 2008.
The reason why these group of young adults have difficulty in paying off their debts on time is because their spending always tend to be higher than their income which means they will always have problems paying off their debts on time every month. This will mount more pressure on their income capacity. On top of that, the amount that they failed to pay which is the outstanding amount will be compounded monthly. This means that the interest rate will be applied to the total outstanding amount each month.
Hence the more money owed, the faster the debt will grow which will in turn result in more money owed again. This is why many of them have end up becoming credit card defaulters. To prevent from incurring more and more debts, it is advisable to ensure that the repayments exceed the compound interest which means to pay more than the monthly minimum.
However this is easier said than done because most of them spend more than what they could afford with their monthly salary without thinking of their ability to pay off the debt on time. And many of them realise that they have overspend only when they receive their bills and to minimise the damage done, they only try to pay up the minimum amount every month, this means late charge will be avoided but finance charge will still be incurred every month which will still lead to rollover debt. In the worst case scenario, many people will file for bankruptcy.
Young adults should be more responsible when handling their own finance by spending within their limits and not to spend beyond their earning capability. Based on DP Credit Bureau (DPCB), young adults are twice more likely to have bad debts compared to other age groups. In addition, DPCB data shows that percentage of 6.3 per cent of all credit card debts users that are young adults are defaulting on their credit debts which is highest compared to 3.3 per cent other Singaporeans.
In order not to fall into the credit trap, young adults need better education in helping them to make better finance decisions. For instance DPCB have launched credit education program such as the Consumer Credit 360 directly into libraries and university to better equip young adults to improve their financial literacy...

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