A guide on how to
USE CREDIT WISELY
Produced by
Citibank Singapore Ltd
use credit wisely
Having a credit line or card these days isn’t just about convenience; it’s also an
important and necessary tool in times of crisis, emergencies, or even for major
decisions such as buying a property. Leveraging on credit facilities makes managing
your money easier, but it’s also a big responsibility.
As a market leader in the banking and finance sector, we believe in empowering
not just our customers but also the general public with information and solutions
to help you make sound financial decisions. The more you know about credit, the
more likely you are to use this powerful tool wisely.
With our Use Credit Wisely publication and website, we aim to reach out to a wider
audience, offering advice and solutions that are relevant and beneficial.
As we make choices in a complex world, financial literacy is a key asset to achieving
your life aspirations and objectives. I hope you will find the information in this
book useful, and enjoy the read!
Anil Wadhwani
Head of Consumer Markets
Citi Singapore
Promoting the responsible use of credit and money management through
education has always been our key priority at Credit Counselling Singapore. While
credit, if used wisely, can be useful and productive, it can lead to unmanageable
debt and financial crisis when used improperly, as much of our counselling
experience has shown.
It is therefore very important that credit should always be used prudently and
responsibly, and individuals should know how to manage credit. We hope that you
will gain useful insight and ideas through this book.
Use Credit Wisely
Copyright 2009, Citibank Singapore. All rights reserved.
Our thanks to Far East Organisation and Paulaner Bräuhaus Singapore for the use of their
premises for the photoshoot.
No part of this publication may be reproduced, stored in a retrieval system or database or
transmitted in any form or by any means, electronic, mechanical, photocopying, or otherwise,
without prior written permission of the publisher. Updated as of July 2009.
www.citibank.com.sg/usecreditwisely
Kuo How Nam
President
Credit Counselling Singapore
This book is part of Citi’s continued efforts in financial education.
For more information on our Use Credit Wisely programme, please visit www.citibank.com.sg/usecreditwisely.
For more information on Citi Financial Education, please visit http://financialeducation.citi.com.
CONTENTS
Know the Rules
All About Credit
05
05
07
08
12
15
What is Credit?
What are the Different Types of Credit?
Common Types of Secured Loans
Common Types of Unsecured Loans
What Do I Need to Know When Borrowing for the First Time?
How Much Credit Can I Afford?
APPLYING FOR Credit
16
18
19
22
What Do Lenders Look for?
Things to Consider Before Borrowing
How Do I Maintain a Good Credit History?
10 Citi Tips for Good Credit
ManagE Your Finances
Gaining Financial Control
25
28
30
31
37
Budgeting Basics
Am I Headed for Trouble?
How Can I Control My Finances?
What if My Debt Goes Out of Control?
Bankruptcy Options
Be Protected
Fraud Protection
39 How Can I Protect Myself Against Fraud?
40 Credit Card Fraud on The Internet
40 What Do I Do When I Lose My Cards?
Identity Theft
42
43
44
46
How Can I Protect Myself Against Identity Theft?
How Do I Deal with Identity Theft?
How Do I Reclaim My Identity?
How Do I Resolve Problems with My Credit Report?
0
use credit wisely
use credit wisely
know the rules
know the rules
All about Credit
KNOW THE RULES
What is Credit?
Credit allows consumers to pay for goods and services today and
spread the cost over time. It is an especially useful tool during
emergencies, when you may need money quickly.
Credit these days is not just about convenience. Without credit and
loans, many of us may not be able to afford big-ticket items like homes
or cars. Credit also helps to ease the immediate financial burden
when you have to purchase everyday items such as refrigerators and
washing machines.
However, taking on credit is a huge responsibility, which is underpinned
by your ability and intention to repay. You should only borrow
amounts that you can pay back comfortably.
What are the Different Types of Credit?
There are several basic types of credit. By understanding how
each works, you will be able to get the most out of your money
and avoid paying unnecessary charges.
Different types of credit offer different terms and
interest rates, depending on the nature of credit. The
attraction of credit is that it allows you to get a loan
for a specific purpose, such as financing the purchase
of your new car, paying for your child’s university
education or buying and renovating a home.
Credit comes in several forms.
Understand how different types of credit work
to help you use it wisely.
Loans facilitate the borrowing of a sum of money, called
the principal, which has to be repaid with interest.
The interest rate on a loan compensates the lender for making the
original sum of money available to you. Because of the interest
component, the total amount you have to repay is more than the
amount you borrowed.
0
0
use credit wisely
use credit wisely
know the rules
know the rules
Secured loans are guaranteed by a collateral that is equal in value to
or more than the amount of the loan, for example, a property or a car.
Thus, examples of secured loans are mortgages and auto loans.
Unsecured loans do not require collateral and are extended based on
several criteria including your income, credit history, credit score and ability
to repay. An example of such a loan would be a term loan or line of credit.
A lender seeks collateral for a secured loan in case of the borrower’s
inability to pay. If a borrower cannot keep up with his loan arrangement
and repay his loan, his collateral may be taken to pay off part, or all,
of his debt.
Lenders generally view this as a last resort and will try their best
to help the borrower make his repayments, possibly even under
a new repayment arrangement. Nonetheless, it is important for
the borrower to be certain from the onset of the loan that he can
maintain his loan repayments throughout the loan period.
In contrast, in an unsecured loan, the lender is providing the loan
based on an expectation that the individual will repay the loan - this
will usually involve an assessment of the borrower’s income and
credit history.
Since an unsecured loan does not require collateral, a higher interest
rate may be charged. This is to compensate the lender for the
additional risk it is taking by not asking for collateral.
Classification of Interest Rates
WHY DO INTEREST
RATES VARY?
The interest rate
charged on loans is a
measure of the risk that
the lender is taking in
providing the borrower
with money - the greater
the perceived risk for
the lender, the higher
the interest rate.
You will often hear the terms “real”, “nominal” and
“effective” used to describe interest rates.
A nominal interest rate is an interest rate
that is not adjusted for inflation.
If inflation is taken out of the nominal interest rate,
it would give you the real interest rate. For example,
if the nominal interest rate is 7% and inflation is
running at 4.5%, then the real interest rate is 2.5%.
The effective interest rate gives you the actual interest paid
on a loan, depending on the frequency of compounding.
Compounding is the act of adding accumulated interest back to the
principal amount that you have borrowed.
Common Types of Secured Loans
Secured loans are guaranteed by collateral, which may be taken away
in the event a borrower cannot keep up with his loan repayments.
A mortgage - often referred to as a home loan - is a type of loan used
for the purchase of property. Under a home loan agreement, the
bank lends out a sum of money for the purchase of a property, based
on the property’s value. The collateral, in this case, the property,
is the borrower’s guarantee of repayment.
Similar to a mortgage, an auto
loan enables you to borrow
money to purchase a car. The
car is used as a guarantee of
repayment, and can be seized
if the borrower fails to meet
his obligations.
0
0
use credit wisely
use credit wisely
know the rules
know the rules
Common Types of Unsecured Loans
An unsecured loan typically charges a higher rate of interest
compared to a secured one. This may result in your debt building
up quickly if you do not pay back your unsecured credit.
Credit cards allow you to make purchases without using cash.
If you repay by the due date, you do not pay any interest.
If you pay in part, or after the due date, you have started
to borrow and will pay interest.
Credit cards allow you to spend up to a maximum credit limit, also
known as your available credit line. You usually have a fixed amount
of interest-free days to repay the loan, after which interest will be
charged on your outstanding amount. The number of interest-free
days you have depends on your bank.
Paying your credit card bill
in full by due date
• No late fees
• No interest charges
Paying at least the
minimum but not the full
sum by due date
• No late fees
• Interest will be charged
Not paying your bill by
due date
• Late fees will be charged
• Interest will be charged
The above is only applicable when
your outstanding bill does not
contain cash withdrawals made
from ATMs. Such transactions
are known as cash advances.
While it is easy to withdraw cash
from ATMs, such convenience
come with a fee, and interest is
charged from the date you make
the withdrawal. This means that
even if you pay in full by the due
date, you will still be charged
interest on that cash amount
taken from the ATM.
Cardholders are required to pay a minimum sum
each month, usually equivalent to a percentage
of the total outstanding balance on the card.
Whenever possible, pay your bill in full every
month. Otherwise, your balance will be carried
forward to the following month and the total
sum unpaid will be subject to an interest rate
determined by the bank. If you do not pay the
minimum sum by the due date, additional late
fees will be charged to your account.
Credit cards can benefit consumers who practise
the basics of responsible credit use. You can
enjoy rewards and discount privileges when you
use your credit card to make purchases.
For example, if you drive and usually pay for
petrol with a credit card, use the card that
offers the best discounts or rebates. You will
also receive monthly statements that can help
you track and manage your cashflow. However,
people who do not use their cards responsibly
can find themselves in debt quickly.
0
10
use credit wisely
use credit wisely
know the rules
know the rules
When your application for a credit card is approved, the credit card
issuer sets a credit limit, which is the maximum amount you can
have outstanding from your account. Each credit card issuer has its
own parameters for setting credit limits. Some factors which may
affect their decision include:
• Your monthly income
CREDIT CARD TIPS
• Pay your bills on time to avoid
late fees and to maintain a
good credit record.
• Use your card only when
you can afford to pay for your
purchase.
• Track your credit card
spending carefully.
• Avoid spending up to your
full credit limit; reserve a
percentage for emergencies.
• Do not buy on impulse just
because you can place your
purchase on credit.
• Current debt (other credit cards, loans)
• Length of residence at your
current address
• Home ownership
• Number of times you have applied
for credit
• How much credit you need or use
Should you require a larger credit line,
you may write to your bank to request
for one. Such approvals usually depend
on your current financial standing,
subject to a regulatory cap.
You may qualify for a higher credit
limit if you always pay on time, or if
your income has increased. Your bank
may also grant you a temporary line
increase, usually in times of emergency
or for a specific one-off use such as to
pay for a wedding.
Revolving lines of credit do not have a fixed number of payments.
Borrowers may use or withdraw funds up to a pre-approved credit level.
There are many different types of revolving line of credit products
in the market. Most banks offer an unsecured line of credit, which
combines the features of a checking account and personal
loan to provide consumers with the flexibility to meet their
financial needs. For example, Citibank has Ready Credit.
With most lines of credit, customers can make withdrawals
using their cheque books or at ATMs. Interest is charged
only on the amount of line utilised.
Some revolving credit products are bundled with a term loan, which
gives consumers the convenience of repaying their loan through a
fixed monthly instalment. This is typically useful for consumers as it
gives them a structured repayment plan every time they need a loan.
For example, Citibank’s Ready Credit product comes with PayLite.
Consumers can increase or reduce the loan tenure with PayLite,
giving them greater control and flexibility in managing their cash
flow as financial needs evolve.
11
12
use credit wisely
use credit wisely
know the rules
know the rules
Case studY 1
What Do I Need to Know When Borrowing for the
First Time?
First-time borrowers are often young adults who are just starting
out in their careers.
They tend to have no credit history, which makes it difficult for
lenders to assess their financial health and lend to them. However,
if people cannot borrow, they will not have a chance to build a
credit history. So, first-time borrowers often find themselves in a
tricky situation.
This situation usually resolves itself when young adults start working
because they then have a steady income. This is often viewed positively
by lenders when they make lending decisions. A steady income
reassures a lender that the borrower can meet his repayments.
A young graduate in her 20s has racked
up large credit card bills due to her love
of shopping.
Janet* works for an advertising agency, earning $3,000 a month. She is 24 years
old, single and lives with her parents in a HDB flat in Hougang. Janet loves to
shop and usually charges her purchases to her two credit cards. When her credit
card bills arrive at the end of each month, Janet pays the minimum amount
required and continues to spend on her credit cards. This spending pattern
has seen her credit card debt mount. She now has about $8,500 outstanding
on her credit card balance.
What should she do?
7
GOOD
CREDIT
TIP
First of all, Janet has to recognise that if she continues to pay only the minimum
amount every month as she carries on spending freely with her credit card, her
credit card balance will continue to grow, as will her minimum amount payable.
She should also understand that she is being charged interest on the balance.
Janet must reassess her spending habits and understand that if she continues to
shop on credit without paying her bills in full when they arrive, she will ultimately
be paying more for the things she buys. It is no use going to a sale and buying
discounted goods, only to find that the true cost of these items is bumped up by
the interest payments she has to make on her credit cards as she does not pay
her credit card bills on time.
If possible, Janet must try to pay more than the minimum amount payable and
become more disciplined about her spending. This double-pronged approach will
gradually help rein in her credit card balance. If it is not possible for her to pay
more than the minimum amount, then she should cut her spending further. Either
way, it will take a lot of time and she has to spend a fair amount of money on
interest to pay off her credit card debt.
* Names are fictitious
13
14
use credit wisely
use credit wisely
know the rules
know the rules
Credit history
A credit history is a record of an individual’s past borrowing and
repayments, including information about late payments and bankruptcy.
Having a good credit history is important for future borrowing
requirements. The longer and more established a credit history, the
better chance the borrower has of obtaining a loan.
In Singapore, payment performance data is provided by the banking
and finance industry to Credit Bureau (Singapore) Pte Ltd (CBS), the
local consumer credit bureau. Data relating to your loan payment
performance is collated in your credit file by CBS and may be used by
lenders as part of the assessment process for any new loans you may
apply for, or for a review of your existing loans.
Your CBS file is an indication of your financial health. You should
therefore know what is on your credit file and periodically check to see
what new data has been uploaded.
How Much Credit Can I Afford?
Being responsible about taking on credit is a basic requirement.
It is important that you take a long, hard look at your current and
future financial situation before taking on any new credit.
A rule of thumb to determine how much credit you can take on is to
compare how much you owe with how much you earn. The amount
you owe, or debt, can include monthly payment loans such as auto
and home loans, and credit card debt. A simple calculation based on
these two parameters is called the debt-to-income ratio. Here is an
example of how the debt-to-income ratio is worked out:
Calculating your Debt-to-Income Ratio
Monthly debt repayments = $800
Monthly take-home pay = $3,200
Debt-to-income ratio = $800/$3,200 = 0.25
It should also be noted that some card issuers have special
programmes aimed specifically at first-time borrowers who are
trying to build up their credit histories. Often these programmes
issue cards with low spending limits, but enough for a borrower to
start building a credit history.
Your debt-to-income ratio is usually presented as a percentage.
Thus, with the above monthly expenses and take-home pay, you
would have a debt-to-income of 25%. Because debt-to-income is
a ratio that can statistically be applied across households all over
the world, lenders have a huge database from which they can draw
inferences about your financial well-being based on this ratio.
As a general rule of thumb, a debt-to-income of more than 40-50%
is a signal that you may have too much debt and could be headed
for some financial trouble. The rest of your income is for dealing
with daily expenses such as groceries and transport, as well as for
your savings.
A high debt-to-income ratio could mean that you will be denied
further credit or you will have to pay a higher interest rate if you
take on more credit.
15
16
use credit wisely
use credit wisely
know the rules
know the rules
APPLYING FOR Credit
What Do Lenders Look for?
When you apply for a credit card, personal loan or any other type
of credit, the lender must first decide if you are a good credit risk.
Most lenders use a credit scoring system to determine whether an
applicant is a good credit risk.
If you already have a lot of debt and are applying
for more credit, the creditor may consider you to be
over-extended and may deny your application.
Your debt-to-income ratio would be the basis for their rejection
because the lenders may believe you might not be able to handle
additional payments based on your income and existing obligations.
If you have applied with several lenders within a short time, each may
have accessed your credit report and their inquiries are recorded in
your file. Some lenders may reject an application if the credit report
shows an excessive number of inquiries.
Credit scoring
Credit scoring is a system used by lenders to determine whether or not you are
creditworthy. It is more heavily used when you apply for unsecured credit, including
credit cards.
Creditors collect information about you and your credit standing from your credit
application and through CBS. The information may include your bill-paying history,
the number and types of accounts that you have, late payments, collection actions,
whether you have applied for credit recently, outstanding debt and how long you
have had existing accounts.
17
18
use credit wisely
use credit wisely
know the rules
know the rules
Things to Consider Before Borrowing
Borrowing money can lead to serious problems if your income
reduces or you lose your job. So before you borrow, it would be
prudent to assess other options.
For instance, if you want to borrow money to pay for a large item, is
it possible to save up the money over a few months instead? Is there
a possibility that you can increase your income by working overtime
or taking on new projects? Or could you take on a higher-paying job
with your work experience?
It is important to check if you can afford
the repayments before taking out a
loan. Remember, if you do not manage
to keep up with the repayments on the
money you borrow, things can become
unmanageable. Industry experts note
that this can result in three types of
difficulties for the borrower:
• Financial When you borrow money, and especially if you do not keep up your
repayments on your loan, the interest builds up over time. This means
that the amount you owe can increase very quickly.
• Practical If you do not keep up your repayments, you may receive a negative
credit scoring. Even worse, you may have your collateral taken away
from you if you have taken a mortgage or an auto loan.
• Emotional When debt becomes unmanageable, people often experience feelings
of fear, stress, guilt, shame or anger. If you are in debt, you may receive
phone calls and letters from the companies or people you owe money to.
The 3Cs of credit
Whenever you take a loan you must be aware of the 3Cs of credit. In particular,
taking actions that have a positive impact on the first 2 of your 3Cs augurs well
for any borrower.
Credit History – How responsible you are in paying bills on time
Capacity – Your ability to pay back a loan or credit card dues based on your
income and financial position
Collateral – Security for the lender in case you do not pay back the loan or credit
card dues. A house, for example, would be used to collateralise a mortgage
How Do I Maintain a Good Credit History?
Finally, here are some simple rules that can help you maintain a
solid credit standing.
• Pay your monthly obligations on time
• Do not overextend yourself. Do not spend or borrow more than
what you can repay
• Notify lenders when you move so that your bills will arrive on time
and you can pay on time. Not getting your bill is not a reason for
not making payment
• Be aware of the due dates of your loans and credit card bills, and
ensure you pay them promptly
19
use credit wisely
MANAGE YOUR FINANCES
MANAGE YOUR FINANCES
Case studY 2
4
A young couple manage their finances wisely to purchase the house
of their dreams.
How did Alfred and Emily do it?
Alfred and Emily* lived in a 3-room HDB flat in Clementi. It was the flat they
apartment was that it was clear in their minds that they wanted to save enough
moved into as soon as they got married. While they were happy in their Clementi
money to pay a substantial deposit. Thus, saving for their house dictated the rest
flat, their plan had always been to upgrade to a private apartment within five
of their actions over the five-year period before they had saved enough to put in
years, after which they would start a family. But they were keen to put down a
a deposit.
good-sized deposit on any private apartment they bought so that their finances
would not be strained by payments on any mortgage they took.
GOOD
CREDIT
TIP
The most important aspect about Emily and Alfred’s plan to buy a private
While Alfred and Emily were disciplined about adhering to a strict household
budget, they were certainly not misers. They spent when they had to, though
Both were in their late 20s when they married and reasonably established and
this was usually followed by a frugal period during which both Emily and Alfred
experienced in their jobs. Alfred worked as a media executive while Emily was
did simple things to save money like taking a lunch packet from home to work
an officer in the compliance department of a local brokerage house. With diligent
or getting up early enough to take a train to work rather than taking taxis. They
financial planning and saving, Alfred and Emily managed to put down a 20%
also did not take an overseas holiday for three of the five years, saving some
deposit on a $700,000 2-bedroom condominium unit in the Sunset Way area.
extra money in the process. Neither did they own a car, which they saw as an
unnecessary expense at this stage of their lives.
In addition, Alfred and Emily decided to set up a bank account linked to a mortgage
to manage their home loan instalments. An example of such an account would be
the Citibank Home Saver, a home loan that is linked to a checking account with
an interest adjustment offset feature. The salaries Alfred and Emily both put into
this account, together with their careful spending habits, enabled them to pay off
their home loan faster.
Alfred and Emily found that it was easy to get used to a routine of careful spending
when there is a long-term goal that they are both aiming for. It also helped that
both of them were in steady jobs which had good career advancement and
promotion prospects. Thus, both their salaries also steadily rose during the fiveyear period, which helped them achieve their goal of buying a private apartment.
* Names are fictitious
21
22
use credit wisely
use credit wisely
know the rules
know the rules
10 Citi Tips for Good Credit
There are many things you can do to ensure that you get the best
deals and stay out of trouble when you take on credit.
1
Avoid going down the road
where your monthly repayments
put unwanted strain on your
income stream.
Get a credit product that suits you
Ensure that the credit products you get are the ones that
best suit your needs.
2
3
6
Save money each payday
for emergencies
It is always prudent to set
aside some of your salary
as savings. As a general
rule of thumb, it is best
to set aside at least six
months of your monthly
salary for emergencies.
5
7
Understand the terms of the agreement before
you accept a loan or credit card
If you do not understand the terms of agreement
related to a loan or credit card, that is a sure sign
that you should not take it up. Make sure you
understand what is expected of you when you
take on credit because once you sign up for it, it is
your responsibility to make the repayments.
4
Set a monthly limit for charges
and stick to it
Be disciplined about how much
you want to charge each month
on your credit card. Once you
hit the limit that you have set
for the month, do not use your
credit card again until the
following month.
Shop as carefully with credit as you do with cash
It is sometimes easy to forget that you have to
repay your credit card charges when you go on a
shopping spree. Be careful and do not overspend
with your credit card.
Do not take on monthly credit
payments unless you are
certain you can meet them
8
Pay bills promptly and in full
If you do not pay in full, interest charges
will start to apply. These interest charges
have a tendency to keep growing.
Give your finances
regular “check-ups”
Review your expenditure
periodically to see how
you can spend and save
more wisely. Examine the
areas of your life in which
you are overspending,
and find ways to cut back
in those areas.
10
9
Keep credit card information
(including the phone number of the
issuer) in a safe place in case your
cards are lost or stolen
This will enable you to call the
relevant people to get your credit
card cancelled as a precaution against
it being used by someone else.
Review your loan or card statement
when they arrive each month
This is a good habit because you can see
what you have spent on and adjust your
spending pattern if necessary to ensure
you make prompt payment.
23
use credit wisely
MANAGE YOUR FINANCES
MANAGE YOUR FINANCES
GAIning FINAncial coNTROL
ManagE Your Finances
It makes good sense to draw up a budget for your money so that you are
intimately aware of where your hard-earned income is going.
If you are overspending in some areas of your life,
you should try to spend less in those areas.
Such actions ultimately enable you to take control of your
financial future.
Budgeting Basics
The key to successful budgeting is deceptively simple – spend less
than you earn.
Spending less than you earn is often easier said than done
because you cannot anticipate some expenses that may crop up
unexpectedly. If you actively adhere to a budget however, these
sorts of eventualities can potentially be addressed with less stress
than would otherwise be the case.
Many people have an aversion to drawing up a budget for their
money, offering excuses such as the lack of Maths or financial
background. But what many people fail to realise is that they have
been budgeting all their lives – not only with their money but also
with, for example, the time they spend with their family and friends,
or the amount of effort they put in on concurrent projects at work
to garner a desired outcome in each.
The best way to deal with
credit problems is to develop good habits
before problems start.
In any case, there are a few things you
can do to increase your knowledge of
managing your personal finances. These
include reading relevant books or articles
on the Web, attending workshops by
financial planners or even purchasing
personal finances software that help you
track your spending and income. When
you draw up a budget, you should also set
aside money for saving every month. In general, it is ideal to have at
least six months of your monthly salary as emergency savings.
25
26
use credit wisely
MANAGE YOUR FINANCES
MANAGE YOUR FINANCES
Case studY 3
SETTING GOALS WITH
BUDGET PLANNING
•Group financial goals into three
time horizons: short-term, midterm and long-term
•Ask yourself: What do I need?
What do I want?
Your answers to these questions
will help define your goals. Once
you know what you want, you can
begin to budget with a purpose.
Short-term budget goals are those that you
typically want to achieve over the next year.
These may include paying off your credit
card bills fully or saving for a vacation.
A student has left university
and is faced with the issue of
paying off his student loan.
Mid-term goals are those you want to achieve
over the next two to five years. For example,
you may want to save for a downpayment
on a new house or renovate your kitchen.
Paul*, 24, has left university owing
Finally, long-term goals are those that take
more than five years to reach. Typically,
these have to do with your retirement plans
or your children’s education.
about half his salary to his parents. His
Keeping a Budget
•Record the amounts and purposes of your expenditure for
one month
•Account for everything; it may be tedious but doing so will give
you a database of information about your spending habits
•Gather all your receipts and include your credit card bills and
loan repayments in this exercise
$24,000 in student loans. He is offered
a full-time job at a bank. He is still
living with his parents and contributes
starting salary at the bank is $2,800
a month. He is keen to pay off his
student loan and is wondering about
his options.
What should he do?
If Paul is able to clear his student loan completely in one go, he will be able to
improve his credit rating. This is because lenders take into account other loans
when they lend money to an individual. But typically, people who are in the first
job out of university will not be able to pay $24,000 in full. So, he has to consider
how long he will need to pay off the loan.
As the days go by, you will be able to add up all your tracked expenses
and compare it to your income. Remember the key to budgeting
is to spend less than you earn. Your analysis will show if you are
spending more than you earn and what expenses you may have to
cut back on.
Evaluate what you consider as necessities and get rid of the luxury
items. For example, instead of going out for lunch, pack food from
home; or buy coffee from a hawker centre instead of the fancy coffee
outlets. Sometimes, luxuries can be disguised as necessities, and it is
up to you to weed them out to help ease the strain on your budget.
If you are spending less than you earn, you are in good shape. You
can use the extra money to pay a greater chunk of your debt or
increase your savings.
If the monthly payment is small, the repayments may stretch for a few years. This
would mean that he accrues higher interest charges. It may be better for Paul to
decide to pay off his loan more quickly, say in two years. The monthly payments
may leave him with less disposable income or savings but in two years, he would have
cleared his student loan. He will also not have to pay as much on interest charges.
* Names are fictitious
28
use credit wisely
use credit wisely
MANAGE YOUR FINANCES
MANAGE YOUR FINANCES
Case studY 4
Am I Headed for Trouble?
Sometimes you find yourself cruising along in life without realising
that your bills are piling up and a shock could be just around the corner.
A successful salesman takes out an auto loan to get the car he
always wanted.
Eddie* is a salesman, not married and in his early 30s, whose ambition had always
been to buy a luxury car. Times were good and he was raking in an average of
As a general rule of thumb, your debt
repayments, including those on your credit
card, should not exceed 40-50% of your
take-home pay. If it does, you could be
headed towards that danger zone where it
is very difficult to rein in your debt.
about $6,000 a month including commissions as a paper salesman. So, he took the
plunge and ordered a luxury car when he received his commission payout.
The day Eddie picked up his car was the proudest moment in his life, even though
he had to take a loan of 90% of his car value, with monthly instalments of $1,600
for a seven-year period. He felt sure he could cover his monthly payments because
at the time of his purchase, the Singapore economy was bubbling and paper sales
If you are unsure that this may be happening to you, here are some
warning signs:
were going very well. But within a year of his purchase, the economy had taken a
• Regularly spending beyond your budget
become an expensive possession that was causing him big headaches.
turn for the worse and the paper business started to get bad. His car had suddenly
• Living from payday to payday
• Being unable to meet large one-off expenses like household
insurance
• Always paying only the minimum repayments on your credit card
bill each month
• Not knowing how much your total debt is
• Being near, or at, your credit card limit – especially if you have
more than one card
What should he do?
GOOD
CREDIT
TIP
6
After the downturn came, Eddie found that he was not earning much more than his
basic salary of $3,000 a month. After CPF contributions, his take-home pay was
about $2,400. As such, monthly payments on his car took up about 67% of his total
income, even before factoring in other car-related charges like insurance, road tax and
ERP rates. He had no choice but to sell his beloved car. However, because he took a car
• Consistently paying bills late
loan of 90%, he found that he was in negative equity – that is, the amount he had to
• Hiding your debt situation from your spouse or partner
pay off on his car loan was more than the amount for which he could sell his car.
If two or more apply to you, it could be time to cut back on your
spending and reduce your debt.
As a result, he had to settle the difference with money from his savings when he
eventually sold his car. Luckily, Eddie had enough savings to cover the difference.
Although he had lost his beloved car, Eddie’s quick decision to sell it off helped
him escape even worse debt problems as the global financial crisis escalated.
If he had waited longer to sell his car, his savings may not have been enough to
cover his loan difference because the selling price of his car would have fallen
further, and he would have also had to continue paying for the upkeep of the car.
* Names are fictitious
29
30
use credit wisely
use credit wisely
MANAGE YOUR FINANCES
MANAGE YOUR FINANCES
How Can I Control My Finances?
Getting your finances under control is not always easy and it can
take time. But there are several targets you can set for yourself
that will put you in greater control. Here are some pointers:
• Each month, try to reduce a different spending category
by 5-10%
For example, you could take public transport to work on some days
instead of driving.
• Start a savings account for large, infrequent expenses so they
will not upset your budget
If you successfully manage to spend less than you earn, your
surplus can be allocated to your savings account for off-budget
expenditure on luxury items like shoes or handbags.
• Charge items to your credit card only if you are sure you can
afford to keep up with the monthly repayments
A credit card does not make you richer.
It facilitates the more convenient use of money that you already have.
• Treat a credit card balance like you would treat a bank loan for
the same amount
A credit card balance is essentially an unsecured loan. The amount
you owe the credit card issuer will increase if you do not pay in full
every month. The best option is to pay your credit card dues fully
so that interest charges do not kick in. Even if you decide to have
an outstanding amount on your credit card, you must have a plan
to repay it. If you always pay only the minimum amounts stipulated,
you may be heading for financial difficulty.
• Avoid the “sale” mentality that is so prevalent in Singapore
When you buy a $100 item on sale for $60,
you do not save $40. You spend $60.
It is only a deal if you need it and can afford it.
• Always track your spending and income to make sure you do not
sink into debt
•Try to increase your income if you can
Can you improve your salary? Is a second job possible? Can you
sell something you no longer need? Raising your income would be
a serious option for you to consider in good economic times.
• Reward yourself
Working your way out of debt is a long, hard task. It is also a big
accomplishment. Find inexpensive ways to celebrate your progress.
What if My Debt Goes Out of Control?
If you feel that your debt is getting out of control, you must tackle
the problem immediately. Not doing so only worsens your situation
and creates more headaches for you. Debt can be stressful if you
let it fester.
Sit down and prioritise your responsibilities. Do a ranking
on which expenses you have to meet first. For example,
meeting essential repayments such as your mortgage,
medical and utility bills should be your first concern.
If you are paying off multiple credit card
bills, you should pay off those with the
highest rate of interest first.
Most lenders are sympathetic to people who cannot afford
repayments. Recovering debt can be very expensive to them, so they
are often willing to work out an agreement with you. The best way
to handle your worries about debt is to arm yourself with information
– not just any information, but credible, reliable, and well-backed
information on credit. When you grasp the reality of the situation, it
will calm your fears.
31
32
use credit wisely
use credit wisely
MANAGE YOUR FINANCES
MANAGE YOUR FINANCES
Case studY 5
Coping with job loss
A 45-year-old middle-income worker
has just lost his job and is facing
problems paying off his debt.
Sometimes things go all wrong with your debt situation because you have lost
Joseph* is a 45-year-old aircraft technician
your job. Losing your job can have a profound impact on your emotional well-being
especially if you tend to define yourself by your career.
who is married with three children. He has worked for 15 years in the same
company, getting promoted and obtaining salary increases at regular intervals.
You will naturally go through a grieving process. Let yourself grieve and recover
His current salary is $4,000 a month, a level at which he can look after his family
emotionally. Reach out to family and friends and let them help you. Use your job
though he does not have much left over for savings.
loss as an opportunity to refocus on your values and goals.
One day, he is told that he has been retrenched and his world starts to crumble.
When you have recovered from the shock of losing your job, there are a few things
He has to think about putting food on the table and paying for his children’s
you should do as you enter the new phase in your life:
school expenses. Joseph also has to deal with a car loan as well as topping up his
•Notify creditors of your situation, and inform them regarding your
ability and plans to make payments.
CPF account to handle the mortgage repayment on his HDB flat. But he is not
confident about getting another job at his age and is feeling the stress. His wife
does not work, adding to the pressure.
•Sit down with the members of your household and list all expenses.
Determine which expenses can be eliminated, reduced or deferred.
What should he do?
•Develop revised budgets covering the next several months based
For Joseph, being in debt can be terrifying after he has been retrenched. The first
on your new financial situation. Control your spending accordingly.
thing he should do is contact his creditors to assess the possibility of stopping his
•Use new credit only for absolute necessities that cannot be
debt repayments or lowering them temporarily until he is able to get back on his
delayed, foregone or paid for in any other way. Keep careful
feet. Joseph could use his savings to cover household expenses, including looking
account of the credit used.
after his children’s education needs. If possible, he should also use his savings to
•Take steps to regain employment, and take advantage of available
programmes, benefits and insurance to supplement income.
maintain minimum monthly payments that are due during the time when he has
no job.
•Make use of community resources to maintain health, vitality and a
Some experts recommend that after household expenses, people in Joseph’s
positive outlook. Eat well, sleep well and maintain social contacts.
position should pay off their secured loans like mortgages next, and then
unsecured loans like credit card debt. In the meantime, Joseph should assess
what his family can live without, to cut down his expenses. It is important for
him to stay positive and focus on getting a job. If he needs to do some additional
training to secure a new job, it would be prudent to do so.
* Names are fictitious
33
34
use credit wisely
use credit wisely
MANAGE YOUR FINANCES
MANAGE YOUR FINANCES
Case studY 6
Credit Counselling
A good resource if you are seeking help to manage your debt is
Credit Counselling Singapore (CCS). CCS’s programmes promote the
responsible use of credit and money management through education.
A middle-income worker cannot work because he has contracted a
long-term illness.
RB Singh* was diagnosed with severe respiratory problems, and his doctors say
he will need at least 10 months of rest before he can return to work. This means
A major objective of the organisation is to help consumers recover
from serious debt problems by providing general credit management
information, credit counselling and where possible, put up a debt
repayment plan for suitable consumers.
that RB, who works as a draughtsman at an architecture company, will lose his
For more information on CCS, please refer to www.ccs.org.sg.
whether he has enough savings to look after his children. He has a $35,000 car
income for several months. He is a widower with two young children.
The stress is building up as he worries about whether he can keep his job and
loan to repay as well as a $10,000 personal loan which he took to tide his family
over while he stayed home for three months to look after his children after
his wife’s death. RB has no health insurance but has enough in his Medisave
account to cover some of his medical expenses.
What should he do?
3
GOOD
CREDIT
TIP
For many, a long-term illness does not necessarily mean a loss of income. The
first thing RB should do is discuss with his employer the various medical leave
options open to him. He should also contact his creditors with a doctor’s letter
explaining his predicament. Generally, if he explains to his creditors that he may
have trouble making his debt repayments because of his illness, creditors tend
to be understanding. They may offer to stop interest or lower repayments for a
period of time.
Like many people, RB did not factor illness into his financial budgeting plan. But
as he learnt, illness can strike at any time and some sort of plan should have been
put in place, especially as he has two young children to think about.
* Names are fictitious
35
36
use credit wisely
use credit wisely
MANAGE YOUR FINANCES
MANAGE YOUR FINANCES
Debt Repayment Scheme
A last resort for people who are having debt problems is to declare
bankruptcy. Bankruptcy is a process where someone who cannot
pay his debt is publicly recognised to be insolvent. The Court usually
appoints an Official Assignee (OA) to administer the bankruptcy
estate which includes selling of assets, registration of creditors’
claims and paying out dividends to his creditors. This can be highly
traumatic for the individual.
A person can be declared bankrupt on the order of the
High Court if he is unable to pay his debt of at least $10,000.
But from May 18, 2009, a Debt Repayment Scheme (DRS) to help
people avoid bankruptcy started operating in Singapore. Under
DRS, a person with liabilities of less than $100,000 who is employed
and earning a regular income may avoid bankruptcy by proposing
and sticking to a debt repayment plan.
Debtors under the scheme will be expected to repay as much of
their debt as possible from their income. They may also have to
realise their assets - sell their car, for example - and make other
adjustments to their lifestyle. Generally, debtors should complete
repayment within three to five years under the supervision of the
OA, who may also modify the repayment plan to ensure the interests
of debtors and creditors are adequately considered.
Should a debtor be dishonest, fail to cooperate with the
OA or not comply with the terms of the plan or his duties
under DRS, the OA may issue a certificate of failure
that will allow creditors to initiate fresh bankruptcy
proceedings. Besides repaying creditors, debtors under
DRS will have to undergo financial education that will
emphasise the importance of discipline.
Bankruptcy Options
If you are facing bankruptcy, it means that you are unable to pay
your creditors back.
You may have overextended yourself on multiple credit cards via
some indiscriminate spending or you may have lost your job, making
it difficult for you to keep up with your loan repayments.
You may think that filing for bankruptcy is the best way out of your
credit dilemma but this may not necessarily be the case.
Often, many creditors are willing to work with people who
have trouble paying their debts in order to try and work things out.
You should actively seek out your creditors to address these options.
But if you have no choice and you find your debt continues to pile up
higher than your income, you may have to file for bankruptcy.
Once your bankruptcy case has been filed, it becomes public record.
It is not a move to be taken lightly. If you file for bankruptcy, your credit
report suffers and your future loan applications will be rejected.
There is also some stigma attached to being a bankrupt and this
may hamper you if you are out of job and looking for work.
Thus, it is important that you carefully consider the option of
declaring bankruptcy. Look hard for other sources - family and
friends - to pay off your debts. Do everything within your power to
avoid taking the bankruptcy route. Declaring bankruptcy should be
your last resort.
37
use credit wisely
BE PROTECTED
BE PROTECTED
FRAUD PROTECTION
be protected
How Can I Protect Myself Against Fraud?
It is not possible to totally prevent fraud
from happening, but there are measures
that you can take to protect yourself.
There is no single definition of fraud,
but some types of credit fraud that
occur include identity theft, which
is the unauthorised use of personal
identification information to commit fraud or other crimes, and
identity assumption which represents a long-term victimisation
of identification information. Credit card users also have to worry
about fraud sprees, in which unauthorised charges are made on
existing accounts.
There are several warning signs that credit fraud may be occurring.
You may get bills arriving from unknown sources, or receive calls
from creditors or collection agencies about loans that you did not
take. Protect yourself with the following steps:
• Sign on the back of your credit card the moment you receive it
• Keep an eye on your card as far as possible when making transactions
• Dispose of all personal documents properly
• Check your account balances regularly
• Review your monthly statements and report discrepancies immediately
• Inform your bank in advance of any address change
• Patronise only reputable websites when making purchases
Credit card, Internet and other types
of fraud can often be prevented.
• Beware of unsolicited e-mails asking for personal information
• Never lend your credit card to anyone
• Purchase solutions such as ID Protect and Card Protection Plan,
or get the free Citi Alerts service to protect yourself
39
40
use credit wisely
use credit wisely
BE PROTECTED
BE PROTECTED
Credit Card Fraud on The Internet
Credit card fraud on the Internet is growing and can catch anyone
by surprise.
Keep your ATM card safe
• Choose a personal identification number (PIN) that is not your phone number,
home address or birthday.
To avoid becoming the victim of Internet fraud, do not give your
credit card number online unless the site that requires your card
details is a secure and reputable site.
• Memorise your PIN and do not write it on anything in your wallet. According to
You should never trust a site just because it claims to be secure.
You should do your homework on the company to ensure that it is
legitimate. Try to obtain a physical address rather than merely a
post office box and a phone number. For further reassurance, call
the seller to see if the number is correct and valid. Send them an
e-mail to see if they have an active e-mail address and be wary of
sellers who use free web-based e-mail accounts.
• Check all your ATM receipts against bank statements. You will be able to spot
banking industry data, in a third of all ATM card frauds, the PIN was on the card or
in the wallet. Destroy the PIN mailer that you receive after memorising this PIN.
any unauthorised withdrawals.
• You should not lend your ATM cards to anyone or leave cards and receipts lying
around in your home or on your office desk.
• Use alert services provided by banks, for example Citi Alerts, to keep track of
unauthorised use of your card.
Be cautious when responding to special offers, especially through
unsolicited e-mail.
If a deal is too good to be true, it probably is.
Do not be conned by such scams.
What Do I Do When I Lose My Cards?
Once you report the loss or theft of your debit, credit or ATM card,
you are not responsible for additional unauthorised transactions
occurring after that.
However, you are still liable for any unauthorised charges made before
you reported the loss. Hence it is important to inform your bank
immediately once you discover your card is not in your possession.
If your wallet was stolen or lost, you will need to report the loss of
the wallet to the police, and the loss of your card to the card issuer.
Unauthorised transactions may continue to appear on your
statements, so carefully review each statement you receive and
report each error quickly.
41
42
use credit wisely
use credit wisely
BE PROTECTED
BE PROTECTED
IDENTITY THEFT
How Can I Protect Myself Against Identity Theft?
Identity theft happens when your identity is stolen and used to
obtain credit such as loans and credit cards in your name. All the
thief has to steal is your name and address before committing
fraudulent activities.
There are various ways a person can fall prey to a fraudster:
Mail redirection Once fraudsters have documents with personal
information of the victim, they can change the victim’s address and
redirect mail to themselves.
Phishing This is where e-mails are created to look like they have
come from a legitimate source, such as your bank. These mails
will ask for account details or ask the account holder to update
their personal details. Sometimes, they may even ask the victim
to disclose his PIN.
Cold Calling Some fraudsters call customers offering non-existent
products or services. During the call, they will ask the customer
to confirm security information that they later use. If you are
concerned about the authenticity of a call, ask the caller for a
company telephone number so that you can call to verify the
authenticity of the caller before you give personal information.
While it is not possible to protect yourself from all types of identity
theft, there are some steps you can take to minimise the probability of
its occurence:
• Protect your letterbox
Your letterbox is a favourite target of identity thieves, so it is important
to always remove your mail as soon after delivery as possible. It is
also best not to dispose of mail containing your personal details in
public bins.
• Protect your wallet
Identity thieves also try to get access to people’s wallets. Minimise
your risk by keeping items with personal information in a safe place
at home. Identity thieves look for information on old receipts. Do not
leave receipts at ATMs or bank counters. It is a good idea to destroy
all of your receipts when you no longer need them.
• Protect your credit and debit cards
There are some very important precautions to take with your credit
card. Whenever you receive a new credit card, sign on it immediately.
Never loan your credit card to anyone. Notify your bank and other
issuers when you change your address or phone number and be sure
to report all lost or stolen cards immediately.
There are several solutions in the market that you can purchase
to protect against fraud. An example of such a product would be
ID Protect, which is offered by Citibank, Card Protection Plan Ltd
and Credit Bureau (Singapore) Pte Ltd (CBS). This identity protection
service safeguards customers from identity theft and card fraud by
providing a complete range of prevention and resolution services.
There are also free services such as Citi Alerts, which allow you to
view recent transactional details, or receive customised alerts each
time your credit or ATM card is used.
How Do I Deal with Identity Theft?
If you are the victim of identity theft, it is vital that you act quickly to
minimise the damage to your name and your financial reputation.
In Singapore, the first thing you should do is file a police report.
Even if the police cannot catch the identity thief, having a copy of
the police report can help when dealing with creditors. Get a copy
of the police report in case the bank, credit card company or others
need proof of the crime.
43
44
use credit wisely
use credit wisely
BE PROTECTED
BE PROTECTED
You should also report the identity theft to CBS. Inform CBS that
your personal particulars are being used by an unauthorised person
to obtain credit fraudulently in your name. Review your credit
report with CBS to see which creditors have reported activity that
is fraudulent. Immediately contact all new and existing creditors
that have become involved, by telephone and again in writing. If you
wish to maintain an account with a business, replace the existing
account with a new one.
When dealing with the authorities, creditors and financial institutions
you should keep a log of names, dates, times, correspondence
addresses and telephone numbers; include a synopsis of all
conversations. Follow up all conversations in writing, recapping
the conversation and any conclusions that were reached. Keep and
file all correspondence. Send all correspondence by certified mail,
return receipt requested. Print out and file all e-mail. Keep a record
of the amount of time you spent working on the matter; you may
later be able to seek restitution.
How Do I Reclaim My Identity?
Reclaiming your identity can be a tedious and frustrating process.
Your first emotional reactions may comprise shock, panic, anger,
frustration, helplessness and a sense of violation. These are
normal reactions.
However, do not let these emotions impede your ability to
communicate quickly and effectively with the numerous agencies,
banks, and businesses you must now contact.
If you find a person is totally uncooperative, ask to speak to the
supervisor. At this point, the burden is upon you to prove that you
are a victim of identity theft. Remember you may have to deal with
others who do not understand identity theft and how it impacts
your life.
The following steps can help you regain control of your identity:
• Credit cards, debit cards, or other bank accounts If you have reason to believe
that an identity thief has tampered with your accounts, close them immediately
and open new ones.
• Investments If you believe that an identity thief has tampered with your
securities, investments or brokerage account, immediately report it to your
broker or account manager.
• Phone service If an identity thief has established a new phone service in your
name, is making unauthorised calls that seem to come from your cell phone, or
is using your calling card and PIN, contact your service provider immediately to
cancel the account and/or calling card. Open new accounts and choose new PINs.
45
46
use credit wisely
use credit wisely
BE PROTECTED
BE PROTECTED
How Do I Resolve Problems with My Credit Report?
You should first call Credit Bureau (Singapore) Pte Ltd (CBS) to
inform them of your problem and then follow up in writing.
The letter should include information which you think might be
inaccurate and supporting documents to substantiate your dispute.
Please note that the documents supplied to CBS should not be the
original copies.
Give the facts, explain why you dispute the
information and request deletions or corrections.
You may want to enclose a copy of your credit bureau report,
highlighting the items in question. Send your letter by certified mail.
Request a return receipt so you can document what CBS received
and when. Keep copies of your dispute letter and enclosures.
CBS will usually investigate the items in question within three
business days from the date of receipt of the disputed information.
If it cannot finish its investigation within three days, it will inform
you that it needs more time to complete its investigation.
If the investigation cannot be completed within 10 business days
from the date of receipt of your disputed information notice, or if
CBS determines that it cannot resolve the dispute, the matter will
be referred to its Compliance Committee.
In addition, tell the creditors in writing about your disputed item.
Again, include copies (not originals) of documents that support
your position.
Many financial organisations specify an address to send disputes to.
If the financial organisation then reports the item to CBS, it must
include a notice of your dispute. If the disputed information is not
accurate, the financial organisation must not use it again.
47
48
use credit wisely
Important Contacts
Citibank Singapore
24-Hour CitiPhone banking
(65) 6225 5225
www.citibank.com.sg
Use Credit Wisely
www.citibank.com.sg/usecreditwisely
The Association of Banks in Singapore
(65) 6224 4300
www.abs.org.sg
Credit Bureau (Singapore) Pte Ltd
(65) 6565 6363
www.creditbureau.com.sg
Credit Counselling Singapore
1800 2255 227
www.ccs.org.sg
use credit wisely
49