The Monetary Authority of Singapore (MAS) implemented the Credit Limit Management Measure to help borrowers avoid accumulating excessive unsecured debts.
From 1st June 2019, an individual’s unsecured credit limit will be reduced from 18 to 12 times of his/ her monthly income. In other words, if your unsecured credit balance is more than 12 times of your monthly income, you will face restrictions when utilising unsecured credit.
Image 1: Credit limit management – Skyscrapper, Pixabay
With these MAS credit limit management restrictions, you will not be able to: –
1) charge new purchases to your credit card;
2) issue cheques or draw money from your unsecured credit line;
3) pay recurring charges with your credit card, and
4) apply for new credit cards, unsecured loans, or increase your credit limit.
As a result of the new limit, some of you may be affected and may soon see your credit utilisation disrupted. There are hence concrete steps that you can take to reduce your unsecured debts which are discussed below.
Firstly, knowing is half the battle won. In Credit Bureau Singapore’s (CBS) credit report, you will find the necessary data to help you come up with a comprehensive plan to reduce your outstanding balances. Your credit report is a record of your credit payment history complied from banks and major financial institutions and it should be the first place you go to better understand the totality of your debts.
Secondly, you have to plan your expenditure wisely so that you can focus more on paying off debts.
Thirdly, you have to make payments to your credit facilities in full and on time. If you are unable to do so, you should try to maximise your payments and remedy any delinquencies or defaults.
Next, you can seek credit counselling from Credit Counselling Singapore, where they specialise in helping individuals to address their unsecured, legal, and consumer debt problems through education, credit counselling and facilitated debt restructuring.
Lastly, you may consider signing up for the Debt Consolidation Plan (DCP). DCP is a little known option of reducing credit debt. It is a debt refinancing program where a customer consolidates all his unsecured credit facilities across various financial institutions under 1 participating financial institution.
You may want to consider DCP if you are struggling with multiple payments across various financial institutions. Under DCP, you will have: –
1) a greater ease of payment with only 1 financial institution,
2) lower interest rates and
3) greater control of finances under a disciplined fixed monthly repayment scheme.
However do note that some categories of unsecured loans are not included from DCP: –
- 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: –
1) You are a Singapore Citizen or Singapore Permanent Resident
2) Earn between S$20,000 and below S$120,000 per annum with Net Personal Assets of less than $2 million; and
3) 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 debts or building credit scores is to know what areas can be improved. You can start by obtaining your credit report from CBS. A little investment can go a long way!
To find out more, please visit the CBS website and like our Facebook and Instagram page @creditbureausingapore now, because we constantly post useful content related to credit, which you wouldn’t want to miss! Alternatively, you can call our friendly customer service at 6513 8393 or contact credit bureau here.
Paul Ho from iCompareLoan says,
“For people who has a private property with low outstanding housing, you may consider extracting home equity to repay your unsecured debt quickly as anyone taking Debt consolidation plan (DCP) would be seen on your credit report. The interest rates may hoover around 5+% per annum through 12-14% per annum for those who will FAIL TDSR.
Here is how an Equity Home Loan Report looks like from iCompareLoan.com for those who still has good income and can pass TDSR, here is a cheaper form, to Refinance + Extract Home equity. Here is a sample Home Equity Financing Report from iCompareLoan.com”