Financial Health Check: How Much Credit Card Debt Is Too Much For Singaporeans?

Personal Finance

Financial Health Check: How Much Credit Card Debt Is Too Much For Singaporeans?

August 23, 2023

Credit cards have become essential to our daily existence. Despite the emergence of e-wallets and several other electronic payment methods, they remain significant, particularly in Singapore.

These are valuable tools for establishing a favourable credit record and facilitating convenient transactions in daily life. Most banks in Singapore will extend higher loan amounts if you have a reputation for maintaining good credit score.

However, credit cards can lead to undesirable indebtedness if not used cautiously. It is widely acknowledged that to maintain a favourable credit score, keep credit utilisation below 30% and consistently settle outstanding balances punctually.

How much credit card debt is too much? Let us scrutinise how much the credit card debt threshold is too high for Singaporeans.

How Much Credit Card Debt Is Too Much?

How Much Credit Card Debt Is Too Much

The extent of debt considered ‘excessive’ is contingent upon the cardholder’s individual financial position and circumstances. For instance, the average consumer debt among households in Singapore is roughly S$67,692, According to the Department of Statistics data.

Average Consumer Debt On Credit Cards And Global Credit Card Implications

According to Experian, a consumer reporting credit organisation, the average consumer debt globally in 2022 was $5,589. This level of debt may exceed the comfort threshold for specific individuals. While for others, it may align with their typical monthly expenditure on a credit card.

The Misconception Of Zero Debt

At first glance, zero debt appears more favourable than possessing any debt. Debt inherently signifies a state of duty, while freedom is commonly associated with a state devoid of such commitments. Regrettably, our system does not operate in this manner.

The Importance Of Showing Responsible Credit Card Activity

Having a modest and consistent revolving amount on one’s credit card can be advantageous in establishing creditworthiness. It allows issuers and creditors to observe prudent credit card usage. In essence, the objective is to establish one’s financial accountability concerning their debts and debt commitments.

Revolving a balance on a credit card allows you to avoid paying interest for a limited time after transferring the balance. The absence of a credit history and the lack of evidence of responsible repayment behaviour, such as carrying amounts and promptly settling them, may indicate to creditors that you possess a higher risk level and are not eligible for borrowing funds.

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Ways Of Managing Credit Card Debt

Credit utilisation role is crucial in determining credit scores. Credit utilisation refers to the proportion of credit the card owner utilises concerning the sum allocated across all their credit accounts. Those who possess credit cards should strive to have a credit use rate of less than 30%.

How To Calculate Credit Utilisation

The process of calculating credit utilisation is relatively uncomplicated:

  • Calculate the cumulative credit limit by summing the individual limits on the credit of every credit card in possession, hence obtaining the aggregate credit limit.
  • Next, calculate the sum of the balances across all of your credit cards and compare the resulting figure with the second amount.

If an individual’s aggregate balance exceeds 30% of their overall credit limit, they may be experiencing a significant level of indebtedness.

Recommended Credit Utilisation Percentages For Singaporeans

According to experts, one should maintain a credit utilisation ratio ranging from 1% to 10%, with a utilisation ratio falling around 11% to 30% commonly regarded as favourable.

Credit card companies and creditors prefer cardholders who consistently pay off their obligations and demonstrate responsible usage of revolving credit.

Credit Card Usage Balance And Risk In Singapore

Those who do not utilise their credit cards do not generate revenue for the company that issued the card, except if they are subject to yearly fees. Conversely, cardholders who exceed a significant portion of their available limit usually present a higher level of risk.

A small debt can potentially enhance an individual’s credit score in the long run. This is because credit behaviour is favourable and characterised by punctual payments and low balances, among other factors.

Credit Card Debt: Risk Management Strategies 

When an individual financial situation is a place of feeling overwhelmed by debt from credit cards and facing the burden of excessive interest costs, there are available methods to reduce credit utilisation and effectively control the debt.

Paying Off Balances On Credit Card Debts

If individuals with credit cards have an adequate income, the most efficient method to reduce debt is to settle all outstanding balances on their cards quickly. It necessitates the presence of sufficient liquidity, which can sometimes be less achievable.

Implementing a budgeting strategy to settle outstanding bills gradually might prove beneficial, mainly when interest accumulates.

Applying For Personal Loan

A personal loan may be cheaper if you need extra time to repay your credit card debt. Personal loans may provide significantly reduced interest rates compared to credit cards.

Borrowers with less-than-perfect credit may get a better interest deal by asking someone with stellar credit to co-sign on a loan application.

Applying For A Debt Consolidation Plan In Singapore

The cardholder can transfer existing balances from many cards into a single manageable personal loan. Borrowing money at more reasonable interest rates can be possible through the Home Equity Line of Credit (HELOC).

Consolidating debt with any loan, such as a personal loan, requires restraint when using your credit cards.

Applying For Balance Transfer Strategies In Singapore

Certain credit card companies provide introductory 0% APR promotions on balance transfers to attract new cardholders. People who have accrued excess debt on their credit cards can benefit from transferring that debt to a freshly issued credit card.

Restrictions apply to balance transfers. Moving balances from one credit card to another costs money, so consolidation loans aren’t free.

Cardholders need to remember that if they don’t pay off their balance in full before the conclusion of the introductory period, interest will begin to accrue to their account.

If you want to take advantage of the promotional transfer of balance offer, you should first see if you can pay off the amount owed in time. To calculate your monthly payment, divide the overall sum by the promotional period’s length (for example, 12 months).

The result is the minimum amount the card user must settle each month to finish paying off the balance before the promotional annual percentage rate period ends and interest accrues.

Click here: Get risk management strategies at Credit Thiry3 in Singapore and clear your excess credit card debt today! 

Bottom Line For Singaporeans

Universally no magic debt number that determines how much credit card debt is too much in Singapore. It is imperative for all individuals who have credit cards to possess a comprehensive understanding of their outstanding balances and personal monitoring spending habits to prevent the occurrence of a recurring pattern of indebtedness.

Credit usage rates of greater than 30% or incurring interest from unpaid amounts are indicators of high debt. It might be excessive when faced with a situation that is beyond one’s ability to control. If an individual perceives that they are encountering challenges in meeting financial obligations or making progress in reducing their debts, they have likely reached their threshold.

Create a budget to facilitate the repayment of outstanding balances. Additionally, one may consider requesting a balance transfer credit or a personal loan to initiate a debt reduction strategy.