Personal Debt Among Young Singaporeans Soars During Pandemic

Personal debt among young Singaporeans have been rising during the COVID-19 pandemic and the situation could turn sour once the interest rates start to rise.

Recent Credit Bureau Singapore data showed that people in their twenties have been taking on increasing amounts of other debt since the second quarter of 2020. The data manifested that the average personal loans and overdraft balances for those under 30 elevated by about 23% in the first quarter of this year over the last three months of 2020.

To illustrate, the average personal loan and overdraft balances for borrowers aged 21 to 29 increased to S$49,689 in the first quarter of this year. This is about 42% higher than the average of S$34,941 in the first quarter of last year.

It is important to note that the borrowing limits in Singapore were capped in 2015 to help keep unsecured debt in check. Experts say that the higher debts observed recently could have been fueled by the low interest rates among other factors.

RISE OF UNEMPLOYMENT

Last March, the unemployment rate among residents below the age of 30 was 6.4 per cent. Unemployment and lower earnings could be the reasons why young adults take personal loans and overdrafts. They try to borrow their way out of the crisis.

“If it is due to youth unemployment, it is often transitory. And the Government already has the SGUnited Traineeships programme and other relief to help young people and help small firms hire young people.” – Singapore Management University’s Associate Professor of Finance, Mr. Song Changcheng

LACK OF PERMANENT JOB

Ms. Selena Ling, OCBC Bank Chief Economist, said that the impact from rising personal debt among younger people will depend on when things turn around in terms of their professional life.

She added: “If subsequently they can find permanent jobs, then they can pay off the debts. But if the duration is extended, then loan delinquency or default rates may rise.”

MANAGING YOUR DEBTS

Awareness of your overall debts and assets is the first step. Include every document, billing statements, loans, and mortgages you have. Take immediate action when you notice that your debts are getting harder to manage.

After seeing the bigger picture, it is time for you to reduce your expenses. Cut down unnecessary expenses such as designer bags or artisan coffee runs. Add the minimum payments of your debts and the cost of your necessities to your monthly budget. To aid your realistic budget, you may sell your unused or underused items online.

Image credits: unsplash.com

Lastly, you can seek professional help. Start by seeking help from your family and friends. Then, consider hiring a professional to reduce your interest rates and penalties at forgiving timeframe.

Source: 1

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Beginner’s Guide To Credit Cards

DEFINITION

Swiping a credit card is the polar opposite of using a debit card. The latter allows you to spend the money that you already have in your checking account. While, the former lets you borrow money from a financial provider. You have to pay an interest at the end of every billing statement.

Be forewarned that having a credit card does not equate to having “free” cash around. It only means that you are expected to pay back whatever you borrowed at a given period of time. Furthermore, you are held responsible to check whether you are spending within the maximum limit.

MECHANISM

How do credit cards work? As a responsible owner of a credit card, you must know the mechanism behind owning one.

Firstly, you must apply for a credit card. Research on which type of card suits your needs the best. Choose a card based on your eligibility, your credit score, your annual income, and your lifestyle. One credit card may have an annual fee, while the other may have a discounted fee for the first year.

Secondly, you must wait for the financial provider’s approval. Major credit card companies often use online services for their card applications. Thus, you will he able to review your application results immediately. Once approved, your financial provider will send you a physical card.

Thirdly, you must make purchases with your card. To spend online, simply enter your credit card number and other additional information (e.g., CVC at the back of the card). Your balance will add up as you spend. Remember to keep an eye on your credit card limit.

The last step is for you to review your billing statement and pay promptly as you have agreed.

SUGGESTION

For beginners, some of the best credit cards this year are as follows. You can count on the American Express Platinum Credit Card for rewards, OCBC 365 Card for dining benefits, and Citi VISA PremierMiles Credit Card for travel miles.

A. American Express Platinum Credit Card lets you reap these benefits:

* Receive 1 Night Stay at Swissôtel The Stamford Singapore worth S$529 upon Annual Fee payment.
* Receive an additional Samsonite Sigma 76cm Expandable Spinner worth S$600 when you spend S$4,500 within the first 3 months of Card Approval.
* Receive S$20 CapitaVouchers each, for the first two approved Supplementary Cards.
* Enjoy Love Dining @ Restaurants privileges which offers up to 50% savings on food orders at a handpicked selection of popular restaurants.
* Love Dining @ Hotels offers you exceptional year-round privileges and savings of up to 50% on food bills for unlimited visits at selected 5 star hotels around Singapore.
* Enjoy a complimentary drink with purchase of at least one item from the merchant’s menu at over a dozen fashionable bars in Singapore.

To qualify, you must have a minimum income requirement of S$50,000 per annum for Singapore Citizens and Residents and S$60,000 per annum for Expatriates. Terms and conditions apply.

B. Citi VISA PremierMiles Credit Card lets you collect travel miles, which you can use in renowned airlines’ frequent flyer and hotel loyalty programs. These include Krisflyer, Asia Miles, and Qantas. You will be rewarded fast as you spend with your card. Terms and conditions apply.

C. OCBC 365 Card is best used for dining. It has a cashback promo that allows you to reap rewards whether you dine internationally or locally. Here is a layout of the rewards:

* 0.3% cashback on ALL spending
* 3% cashback on TELCO bills, local supermarkets, and online purchases
* 3% to 6% cashback when you dine in restaurants island-wide
* 5% cashback on petrol purchases
* Up to 18.3% discounts at petrol stations
* 3% cashback on medical spending – under Child Development Account
* Complimentary travel insurance (up to SGD $800 coverage)
Terms and conditions apply.

Image Credits: pixabay.com

Be wise when choosing your first plastic card! 🙂

Sources: 1 & 2

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How P2P Lending Works In Singapore

BY DEFINITION

P2P Lending, short for Peer-to-Peer lending, took off in 2005. It sprung due to many companies’ efforts to deviate from the financial institutions that let them borrow money. Borrowing from banks took about two to three years’ worth of records. And, many companies do not have the luxury of time. Instead, they turn to the Internet for help.

P2P websites allowed private people from around the world to lend money to various companies. For instance, you can lend S$100,000 to a company requiring money for an expansion. In return, you will receive repayments with interest from the company. P2P lending is very attractive to lenders due to the extremely high interest, which is up to 20% per annum.

SINGAPORE: THE ASIAN CENTER

Singapore reigns as a the Asian center for P2P lending due to being a regional hub for trading, a safe storage of precious metals, and a well- established economy. Singapore is appreciated for its direct approach to lending and borrowing as supervised by the Monetary Authority of Singapore. It even issues promissory letters.

Moreover, Singapore has a cash-intensive economy where a great deal of lending happens outside of the banking system and inside of the online platforms.

HOW TO START LENDING

Take Part In A Larger Portfolio

A well balanced portfolio has a mix of low-risk assets and high-risk assets. By nature, P2P lending is a high-risk asset that invites high returns. It can be used to offset the low returns from your conservative assets such as fixed deposits or Singapore Savings Bonds (SSBs).

Seek help from a qualified wealth manager to balance out your portfolio. As a rule of thumb, experts suggest that high-risk assets should not take more than 15% of your portfolio.

Invest On What You Can Afford To Lose

One of the leading advantages of investing in P2P lending is that you can take on small amounts. You can have various investors pitch small amounts of S$1,000 to fulfill your business goals.

Limit your potential losses by investing only what you can afford to lose. Do not gamble your savings away! Any amount that you cannot recoup within two months is too much.

Spread Out Your Investments

Try not to bury your eggs in one nest. As much as possible, choose to spread out your investments in a list of companies found in a P2P website.

If one company fails to repay you, the rest can do better for your account. It is less likely that every company you chose will fail to repay you. Furthermore, a company may repay you less for a long period of time. You have to get some cushion.

Sources: 1 & 2

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Don’t Make These 5 Mistakes When Applying for a Mortgage

A mortgage represents the most expensive form of credit most people will ever apply for. With house prices well above £200,000 in many locations, taking out a mortgage means taking on a sizeable debt that will take decades to pay off. As such, borrowers have to be very careful about what they do.

The good news about mortgages is that there are plenty of them readily available. The bad news is that it is easy to make costly mistakes. Recognising such mistakes is the first step in avoiding them. The second step is to employ the right strategies that guarantee things work in your favour.

Are you planning to buy a house soon? If so, do not make these five mistakes:

1. Going Directly to a Bank

Banks are the first institutions’ many people think of when it comes time to apply for a mortgage. However, going directly to a bank virtually guarantees not getting the best deal possible. Here’s why: financial institutions only offer a limited number of mortgage deals that are designed purposely with their needs first.

You might go to a bank or building society and discover you only have access to two different mortgage products. What if neither product is right for you? Even worse, how do you know that either of those two deals is really the best you can get? You have no way of knowing because the bank or building society has no incentive to look out for your best interests.

What’s the solution? Avoid banks and use a dependable mortgage brokerage instead. Independent mortgage brokers represent multiple public and private banking institutions as well as third-party lenders. If there is anyone capable of finding you the best mortgage for your circumstances, it is an independent broker.

2. Accepting an Interest-Only Mortgage

Interest-only mortgages may represent a way to get into your dream house without taking on monthly payments you cannot afford, but there’s a catch: paying only interest with your monthly payments means you are not paying down the principal. That is not a problem until you come to the end of the loan at which time a balloon payment is necessary.

If you are taking out a £100,000 mortgage with interest-only payments, are you going to have enough money to pay what you owe on the loan’s maturity date? If not, you are either going to have to take out a new mortgage or sell your house.

3. Obsessing Over Interest Rates

Do not make the mistake of obsessing over interest rates, either. Yes, interest rates are important in determining how much you will pay to borrow. But they are not the only thing to consider. Remember that lenders advertise annual percentage rates (APRs) as opposed to straight interest.

An APR represents the total cost of borrowing over the life of a mortgage. It includes interest, closing costs, application fees, and so forth. It is more important that you concentrate on APR than interest rates alone. Your goal is to get the lowest possible APR on a loan with terms that suit your circumstances.

4. Mortgaging More Than 75%

It has long been understood that home buyers will put down a certain percentage of the purchase price on a home as a deposit. The size of a deposit can vary, but the general rule is to put down 25%. Whatever you do, don’t make the mistake of putting down any less.

A deposit of less than 25% means you are mortgaging more than 75% of the value of the home. Why is this bad? There are several reasons, beginning with the fact that you will end up paying more interest for every pound you borrow. Coming in with a 10% deposit as opposed to 25% means you will be paying a lot more interest.

Mortgaging more than 75% also makes you a higher risk to lenders. That means you will get less favourable rates and terms. Also, note that higher mortgage amounts reduce the number of lenders willing to loan to you. This means you’ll have fewer deals to choose from.

5. Exceeding Your Established Budget

Finally, do yourself a favour and commit to not exceeding your established budget – not even in the slightest. Be prepared that your estate agent might show you houses that are above your budget with the hope of getting you to spend more. Don’t do it.

Exceeding your budget, even by a little bit, could cause serious financial problems down the road. You could stretch yourself so thin that the slightest financial emergency prevents you from making your mortgage payments. Miss a few mortgage payments and you could be in line for repossession.

Also, keep in mind that committing to your budget might mean that you cannot find a house you really like. That’s fine. You are better off waiting until the market improves or you have more money saved. You can never go wrong by not spending money. On the other hand, you can go terribly wrong by spending more than you have.

Now you know what to avoid when it comes time to apply for a mortgage. Good luck in your house search. Hopefully, your estate agent and mortgage broker can work together to get you into the home of your dreams.

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4 Reasons Why You’re Stuck In Debt

Are you drowning in yesteryear’s debt? You are probably pessimistic about your financial future. Eventually, all these bills may push you to your boiling point. When this happens, a fresh start is essential.

Start by being aware of the reasons why your pile of debt exists. Then, do the necessary actions to eliminate it.

YOU ARE ADDICTED TO SHOPPING

Whether you call it shopping addiction or retail therapy, you simply cannot control your spending habits. It is harmful to associate your power and confidence with material possessions. Acquiring a new designer purse may give you short-term happiness, but its price tag may bite you in the long run. At some point, your addiction may turn into financial piles of debt.

Furthermore, our society has a skewed view of what we can afford. For instance, it encourages you to purchase something as long as you can pay off the minimum amount (i.e., when purchasing a car). This mindset may take you to financial regret. You will end up spending more on a monthly or quarterly basis. Instead, do not buy things that you cannot pay for in cash.

YOUR PARTNER IS NOT ON-BOARD

Mixing finances with relationships is complex, especially if you do not see eye to eye. Differences in spending habits and financial beliefs may cause conflicts when not addressed. One of you may be fully committed to being debt-free and practical, while the other spends carelessly. To make this relationship work, you and your partner must come to terms.

In matrimony, it is solely not your money or “their” money. It is “our” money and “our” debts. You are on the same team. Please start acting like one! Plan how you will pay off each other’s debts per month.

YOU ARE UNWILLING TO SACRIFICE

One of the quickest ways to reduce debt is to cut down your expenses. If you are unwilling to sacrifice some of your wants, you will not be able to thrive. How could you possibly justify eating out four nights a week? Do you really need a cable and Netflix subscription?

When stuck in debt, you must be willing to make temporary and permanent lifestyle changes. Ask yourself on what you are willing to give up in order to build a better financial future. Or, you may start by eliminating temporary expenses.

YOU WANT TO KEEP UP WITH OTHERS

Sometimes, the social circles we expose ourselves into can dictate how we lead our lives. Constantly keeping up appearances or doing things for Instagram posting may be costly!

Image Credits: pixabay.com

Yes! Your friend just had a Euro trip with her boyfriend. However, that does not mean that you have to sacrifice your credit to do the same. Following the lifestyle of others may lead you to debt or bankruptcy. You know your financial limitations more than anyone else. Be your own critique when it comes to your spending habits.

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