Rising Credit Card Debt in Singapore

In recent years, Singapore has witnessed a concerning upward trend in credit card debt, with outstanding balances reaching unprecedented levels. This surge is attributed to increased consumer spending, deferred bill repayments, and the burden of high interest rates. Financial experts warn that these escalating debts pose significant risks to individual financial well-being, as many individuals face the compounding effect of not paying off their balances. Furthermore, the increase in credit card debt is reflective of broader economic trends, where rising living costs and financial pressures may drive consumers to rely more heavily on credit.

The Monetary Authority of Singapore (MAS) reported that credit card rollover balances—the amounts not paid by the due date—hit a record high of $7.9 billion in the third quarter of 2024. This marks a substantial increase from the $7 billion threshold crossed in the fourth quarter of 2023, the first instance since data collection began in 2014. The continuous rise in these balances indicates a growing reliance on credit cards and a potential shift towards deferred repayments among consumers. The rollover balance is a critical metric as it reflects the debt that is continuously carried over month-to-month, incurring high interest charges, and represents a segment of consumers who are struggling to pay off their credit card bills.

Concurrently, total credit card billings have also risen, reaching $24 billion in the third quarter of 2024, a 1.3% increase from the previous quarter. While this figure is slightly below the peak of $24.3 billion in the fourth quarter of 2023, it signifies that total billings have consistently remained above $20 billion since the third quarter of 2022. This sustained high level of spending, coupled with the rising rollover balances, suggests that consumers are accumulating debt at an accelerated pace. Increased consumer spending can be attributed to several factors, including higher disposable incomes, greater access to credit, and increased retail and online shopping activity. However, this surge in spending has not been matched by an equal increase in financial literacy or responsible borrowing practices, leading to higher levels of debt accumulation.

The situation is further complicated by the high interest rates imposed on outstanding credit card balances. Major banks in Singapore, including DBS, UOB, and OCBC, charge annual interest rates ranging from 27.8% to 30.8% on unpaid balances. These rates are among the highest in the financial industry and can lead to significant financial strain for individuals who carry balances month to month. For instance, if a consumer maintains an outstanding balance of $1,000, they could incur interest charges of up to $30.80 per month, not accounting for any late fees or additional charges. Over time, this interest accrues and compounds, making it increasingly difficult for individuals to pay down their debt.

A report by Credit Bureau Singapore provides further insights into the demographics of credit card debt accumulation. Consumers in the 45 to 49 age group had the largest average outstanding balances at $6,670, followed by those aged 40 to 44 with $6,542, and 50 to 54-year-olds with $6,304. Interestingly, while these age groups have seen a reduction in outstanding balances from the previous quarter, individuals aged 21 to 39 have experienced an increase in their average outstanding balances since the first quarter of 2024. This trend indicates that younger consumers are increasingly relying on credit cards, potentially due to lifestyle choices or financial pressures. This demographic shift is concerning because younger consumers are more likely to have longer repayment periods, which increases their debt load over time.

Financial experts express concern over the escalating credit card debts. Mr. Alfred Chia, CEO of SingCapital, describes high interest rates on credit card debt as a "hidden, silent killer," emphasizing the compounding effect of daily interest charges on outstanding balances. Similarly, Mr. Steward Thum, associate director of financial services at PhillipCapital, warns that high interest charges can create a "debt cycle," leading to significant financial burdens for individuals. These expert opinions highlight the critical need for consumers to manage their credit card usage responsibly and to be aware of the long-term financial implications of carrying balances. As more people find themselves in debt, experts recommend financial education and the promotion of better financial practices to break the cycle of accumulating interest and fees.

In response to the rising credit card debts, the MAS has implemented measures to protect consumers. The borrowing limit for individuals earning less than $120,000 annually is capped at 12 times their monthly income. Additionally, if a borrower's total outstanding balances exceed this limit for three consecutive months, banks are prohibited from granting additional unsecured credit facilities. These regulations aim to prevent over-indebtedness and encourage responsible borrowing. By limiting the amount of credit that can be accessed by lower-income individuals, the MAS seeks to curb excessive borrowing and prevent individuals from accumulating unmanageable debt.

​The escalating credit card debt in Singapore is a multifaceted issue influenced by increased consumer spending, high interest rates, and demographic factors. While regulatory measures have been introduced to mitigate over-indebtedness, the responsibility largely lies with consumers to manage their credit card usage prudently. Financial literacy and disciplined spending habits are crucial in navigating the complexities of credit card debt and ensuring long-term financial stability. It is clear that while credit cards offer convenience, they also come with substantial risks, and consumers must take proactive steps to ensure that they are not caught in a cycle of debt that can affect their financial future.