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Getting into Debt is the tip of the iceberg

Debt are symptoms of system problems within a person as well as the modern community.

The personal finance news this week have been on unsecured borrowing.

The changes, to be implemented in stages from Dec. 1, include a limit on the total amount of unsecured loans an individual can take to 12 times that person’s monthly income.

The changes are "aimed at improving lending practices by financial institutions and enabling individuals to make better borrowing decisions", the Monetary Authority of Singapore (MAS) said in a statement.

Personally I don’t recall much friends being in such a fix. 12 months does sound a lot.  Usually if it comes to that big of an amount, you would think they would borrow it from a lender at a lower rate.

Banks wrote off S$226.6 million ($178.64 million) in bad debt last year, an increase of 21 percent from S$186.7 million at end-2011

But the absolute number of cardholders rolling over debt is rising, because more people now hold credit cards. As of July, close to 500,000 cardholders roll over debt, up from about 485,000 in 2011.

Sounds bad, but the numbers will be more staggering had our unemployment rates be worse.

Everyone knows you shouldn’t get into debt

The onus is that even if you are not so well educated, or have parents that taught you well, they would have tell you not to get into debt.

Don’t borrow from loan sharks or even regulated money lenders that lend money at high interest rate.

Yet we end up in that situation.

If everyone knows it then why are everyone doing it?

Debt education is not part of credit card marketing

The job of a credit card promoter or the bank marketing it is not to dissuade you from getting a card if you are not ready for it.

They won’t make you answer a financial awareness questionnaire.

The job is to earn their fat commission (credit card promoters earn every well for their efforts) and tie  you on an unsecured loan leash.

I would have thought it is by default folks know about the kind of absurd 24% per annum interest behind until one of my friends brought it up on Facebook.

When he got out of poly, he thought the credit cards were free money! When you weren’t able to enjoy the things prior to that when you are young, you go full throttle on spending.

This go to show that in schools you need a minimal session to make known to the young ones and should be mandatory.

Life is full of curved balls

As finance blogger, it is easy to paint the world as perfect, that everyone should

Things don’t work out this way for every one and they can go through life without this for a long time before  issues like this hits them like a brick.

And then life doesn’t provide them with a good way to get out.

Take the case of one example in the Straits Times:

Azizah, 48, secretary and mother of three

Then:  She had more than $60,000 in debt in 2003, which she repaid by 2008. But she has racked up new debts of more than $60,000. She earns $3,800 a month.

Now:  She is on the debt management program with Credit Counseling Singapore (CCS) and repaying about $1,500 a month. She hopes to clear her debts within five years.

"I was retrenched from a bank in December 2001. From January 2002 to March 2003, I worked at two other jobs, but I had to take a 50 per cent pay cut. Both didn’t pay regularly and the companies ended up owing me my salary.

At that time, I had a renovation loan of about $20,000 and unsecured loans of about $30,000. I took the unsecured loans for my brother to set up a business, but it failed, so he couldn’t pay me back.

Since I couldn’t pay back the loans, the interest payments started snowballing. I had six credit cards.

One of my unsecured loans was with a bank which sent me a writ of summons. I showed the bank a letter from my previous employer showing how much back pay they owed me, but the bank couldn’t accept that.

After the writ of summons, the interest rate on my loan hiked even further, to a double-digit figure. Also, when banks send legal letters, you have to pay, and every letter could be another $150.

I got a new job with a fixed salary, got on board the CCS debt management scheme and five years later I managed to pay everything off.

But, starting in 2008, my aunt developed chronic illnesses. She passed away last year. I paid her medical expenses from my CPF savings. This was on top of looking after her needs, the taxi to and from hospital and food. I had to put her in a home and managed to get her on a welfare scheme. But I still had to fork out at least $300 a month.

I also have to take care of my mother, who has asthma, bone problems and other health problems. Medical expenses are very high.

Then my three children started studying in the polytechnics at the same time. I took a loan to buy them laptops. They didn’t apply for bursaries because I didn’t know about that.

All these happened after I renovated my flat in 2011 for about $30,000. It was more a necessity than a luxury. I also rewired the house because the wiring was more than 20 years old.

Now I have debts of more than $60,000 for the second time. Last year, I was retrenched and now I’m on contract employment.

My husband had a heart attack last month. He was hospitalized and the bill was about $13,000. Luckily, he is insured by his office.

When things come, they come all at once. What can I say, this is my luck."

When you look at a case like this, your finance blogger brain may start to go through that she should have done this and that.

However, sometimes we aren’t fated to have the best of situations and at times, the situation becomes unfortunately bad when problems cluster together.

Systematic Issues

I am rather fascinated in things that doesn’t go according to the default scripts.

If everyone was given that same financial education will things turn out better?

I think not.

Debt is usually the symptoms and paying off a 30k debt for a friend might not solved much of an issue. Hell, give him a severe reprimand or make him swear on his grandfathers grave may not help at all.

People do things like this because of a mindset build up about things that are independent from money. This gets reinforced when they do it again and again and to stop it requires stopping severe inertia.

  • The root of the problem can be a lack of self confidence, causing you to buy the most expensive clothes, gadgets and luxury stuff so as to make it seem to others you have made it.
  • You lead an extremely stressful work life, and these becomes a way of letting go to “balance up that stress”
  • Your life is mundane and with horse betting and soccer betting, for once, life doesn’t look so dull anymore.
  • You have a very poor child hood where you have to share most of your stuff with siblings or have hand me downs. For the first time in your life, you can be free of that and get things on your own.

Note that non of the situation gets “market” as you need debt. Usually that is hush hush.

And if you settle that 30k debt, can you resolve that original problem in the first place?


Often the conclusion to this is usually

  • Folks should start being more self-aware of why they do things in a certain way, whether this compounds to something good or bad
  • Innovative solutions are required to break the bad habits that start the domino effect
  • Pay attention to friends or acquaintance that show that they are good influencers. Digest what they say. It might influence you that there are some things that you should right or start early  to become better or to resolve long standing problems.

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Monday 16th of September 2013

Hi I have been following your post. Very interesting indeed and also your investment criteria is very similar to mind.

For this article is interesting to know yourself. Debt is not totally bad. Debt is just a tool. If you know how to use it wisely, is a good tool. Though if you are not sure how to use, abuse it, or careless with it, it will harm you or even bite you.

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