33 year old earning $5680 spends $4000 servicing 10 years of debt | Investment Moats Skip to Content

33 year old earning $5680 spends $4000 servicing 10 years of debt

Delinquency is on the up. I have a friend who takes care of his finances so well. Does budgeting like a good boy. Doesn’t like to go into debt. He always mind his gap (between income and expenses)

He finds it shocked that people routinely get themselves into these situations. I explained we can’t have the same group of friends and acquaintances, since we work in varied industries.

I got a chance to work with more people born after 1980s, much more than him, and this isn’t a surprise.

Judging by my office from their account, my group of white collar workers are struggling.

InSing has an article out that serves to educate against debt. Its a good account because the guy is open to share  a   lot of his experience so that we can learn from it.

Singaporean professional in 30s deep in debt

  • He currently earns estimate $5680 gross, takes home $4544 and pays 88% or $4000 to service his debt situation
  • The loan is from a license money lender at 16% interest per month

The account of events:

  • His family wasn’t well off so when he started working the spending ability suddenly exploded
  • His lifestyle expanded. Bought car within 6 months, frequent holidays, starts picking up wine and beer tabs for friends
  • The banks entice him with credit cards and he bite, holding up to 10 credit cards and losing track of them
  • He started using “cash advance” on the credit cards which lets you use money first and pay later, which is effective a loan at 24% annual interest
  • He thought he was in control since he can depend on bonus, but every time there are always things to pay come bonus time
  • 2nd year of employment, parents retired, additional utility burden, together with car payments and petrol he has to set aside $1500 or half of his then take home pay ($3,000 net which works out to be $3750
  • Parents have CPF payout by then so it lessens the burden
  • The credit card bill ran up to a full years worth of his salary ( 50k perhaps on 14 month?)
  • Girlfriend was not happy about this. He tries to be prudent to cancel his credit cards, stop going for holidays
  • He spent the next 2 years trying to pay of debts but was then hit by writ of summons by 2 banks threatening to take him to court over remaining $20k in debts
  • He couldn’t afford to since it will affect his job if they know about it (i suspect its a civil servant job where they need you to be squeaky clean) so he turned to licensed money lenders. One was a friend working for one who suggested he borrowed the $20k The interest rate: 12%
  • His plan is to use this to tide over 6 months and then switch to bank again. The problem is that after that the banks still refuse to lend him
  • He had to then refinance the outstanding 25k on the 16% interest money lender mentioned before
  • His lifestyle completely changed by this point, only except lunch, all meals at home, didn’t go out which means he spends more time with parents. Parents also cannot help much in his situation
  • The aim for him is to pay off the money lender in 6 months so that the credit rating can be refreshed
  • He felt the current limit of 20% on interest limits set by authority is still too high

Credit Counselling

The main takeaway of the article was that a lot of stress may be alleviated had he know about credit counselling (hence the purpose of this article.

Restructuring might create a win win situation with the banks on different repayment terms

We can go over to www.ccs.org.sg to find out more

Not budgeting is living a less controlled life

A lot of folks around me underestimate budgeting, or that they felt that budget strangle the life out of them.

Budget is a choice to live a more controlled life of planning and allocating values well, of communicating to yourself, your spouse and to external people.

It also tells you, you have limited money, you got to make choices.

A very very prevalent weak excuse that you can manage the money situation is to rely on the bonus, and without a fundamentally sound budget, you won’t realize that there are many “surprises” such as annual insurance premiums, car breakdowns, taxes that you need to fund before hand.

A good fundamentally sound budgeting method is Zero-based budgeting. You can read about it in this link.

A Credit Card Debt calculator to help

$20k debt is no joke. Even if you start paying 5% of it (first year $1000) it will take you 10 years to pay it off. Your interest is about $12k. It becomes somewhat like a housing loan.

I passed this Credit Card Debt Calculator to some friends who have problems with debt. You can go to this link, go to file > make a copy to start using it.

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Lewis Loh

Monday 4th of August 2014

Funny thing is why he STILL keeps the car, Besides the interst, the car is the largest money sucking liability.

dowz

Saturday 24th of January 2015

If it is a new car with a large outstanding loan, he might need to fork out cash to sell it. [huge depreciation]

Kyith

Monday 4th of August 2014

I am not sure about that but from the looks of things he still is!

johntan1957

Sunday 3rd of August 2014

"16% interest per month" - Are you sure? That's 200% per annum. Surely licensed money lenders cannot charge this.

Kyith

Monday 4th of August 2014

Hi john thanks for pointing out. The article said 12% and 16% per month so I am not wrong.

What is wrong is perhaps him saying that. Thinking about it unless it's super ah long ,that's too much as well

Lizardo

Friday 1st of August 2014

Quite a slippery slope to get into. Hard to get off.

Kyith

Friday 1st of August 2014

there are always circumstances

Jacques

Friday 1st of August 2014

Budgeting is simply to help us understand where our money is going. If budgeting induces groaning, that person's financial situation is probably not as good as it could or should be.

Kyith

Friday 1st of August 2014

Hi Jacques ,

Thanks for sharing.budgeting is tough if you have never done it and if u don't understand the higher thinking of it. Which I only do after doing it for a few years.someone had to explain to me.

Are you based in France ?

Regards

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