Somewhere in Singapore, someone is running a graduate course in advanced bankruptcy. Maybe it’s broadcast on a special wavelength, a sound frequency only morons can hear. I suspect this because there’s too much consistency in Singapore’s bankruptcy cases. Chief example? The Singaporean (soon-to-be) bankrupt’s response to debt. There’s a country wide trend here, and these are the five signs. If you see someone exhibiting the symptoms, I recommend a splash of cold water and a tight slap:
“Because it’s the last thing I have to eat. Give me an advance damn it!”
1. Fix a Loan By Taking a Worse Loan
Taking a loan to pay another loan is bad enough; it’s a gesture of last resort. But some Singaporeans have learned how to take a bad situation, and make it worse.
“Why not pay off my 24% APR credit card,” they wonder, “by using my 24.8% APR card!”
Why would they do this? It’s a face saving gesture. Most Singaporeans are so embarrassed about bankruptcy, they’ll scramble for any credit line that will hide the fact. Even if it means switching a loan with higher interest, or contacting the local loan-shark.
Look, if you’re so deep in depth that printing your bills endangers a small rainforest, maybe it’s time to default. Declaring bankruptcy always sucks; but it’s better to declare it while you owe $10,000, than wait until you owe $20,000. Which is precisely what will happen if you keep deferring to higher interest loans. It’s like trying to stop blood loss by bathing in leeches.
Fixing credit debt with a loan with lower interest does, however, make a bit more sense. In extreme situations, taking out a personal loan may help, and you can get all the help you need over at SmartLoans.sg. Do bear in mind however, that this will affect your Total Debt Servicing Ratio (TDSR) should you choose to try and apply for a housing loan. That being said, if you’re already so deep in debt, chances are paying it off ranks a lot higher on the “importance” scale than getting a housing loan.
“You in the front. Looks like I haven’t borrowed from you yet!”
2. Cash Out Refinancing for the Irresponsible
Cash out refinancing is ordinarily a great thing. This is when you use your home equity for a loan, and get an interest rate pegged to your home loan. It’s cheaper than a credit card, and provides great leverage when used responsibly.
But in the hands of someone with credit card debt, it’s like playing baseball with a live grenade. Because once the loan pays off the cards, they’re available for use again.
I can’t stress that enough: The cards are available for use again. You couldn’t have a worse situation if you hired a morphine addict to manage the hospital pharmacy. Almost invariably, the out-of-control spender will again max out the credit cards. And this time, the credit card loans will be compounded by the refinancing loan.
That said, cash out refinancing is a viable way to control debt. But only if there is an income source (one that can service the loan), and it’s accompanied by the closure of other credit lines.
At MoneySmart, we have no fear of losing our homes. Because we never go there anyway.
3. Borrow from Relatives and Friends
Finance and personal relationships mix like me and too much Thai food; the end result is a stink that’d kill a skunk.
When you borrow from a relative or friend, there’s no paperwork. That means no receipts or ledgers, and the amounts repaid (or owed) become easily confused. Even if you honestly pay them back (assuming you can), they might forget or miscalculate. It’s not easy to separate emotion from business, and before you know it, you’re the star of this week’s In Cold Blood.
Besides, when you borrow from friends or family, you turn the relationship into a financial transaction. No offence, but if you’re in debt, that’s probably a sign you suck at handling those. It’s hard to maintain a relationship when your relative’s face resembles a reminder bill.
“He uh…agreed to lend me money on condition he wasn’t looking. Really.”
4. Resort to Gambling
For anyone with a functioning brain, this may be hard to understand. So here’s the rationale, which I got from a frequent revolver:
Say you have a total debt of $150,000, which requires total monthly repayments of $4,500. Your total salary, without CPF, is $3,000 (Yes, this was a real situation). If you were to put all of your income into repayments, you still wouldn’t cover the bills, and you’d still be living off free samples at Cold Storage.
So instead of paying any bills at all, you may as well blow the $3,000 on the lottery. After all, you might win enough to cover your debt.
Admittedly, there’s a kind of perverse logic to it. The problem is twofold: First, you’re more likely to get killed by a falling asteroid than win Toto. Second, your debts are accumulating at an exponential rate: Winning the lottery takes several draws, and by the time you win (hah, right!) the prize money vs. your debt will be like a spit ball fired at a battle tank.
“We have a very attractive line of investment options…”
5. Repeatedly Ask Your Boss for Advances
Pop quiz: Is it better to be in debt with a stable income, or in debt with no income?
If you repeatedly ask your boss for an advance, you might as well pick the latter. It may not be as blatant as a firing; but some companies would rather give you a severance package and get rid of you.
When you keep asking for advances, it becomes obvious to your boss that you’re in debt. It’s the sort of thing that makes companies nervous: Employees in debt are prone to distraction, unproductive behaviour, and flat out embezzling the petty cash. Your boss assumes (quite rightly) that if you’re down to your last 80 cents, the last thing on your mind is what colour the website should be.
When your debt situation peaks, your job becomes twice as valuable. You need to protect it, and when your company finds out, you need to prove it won’t interfere with your work. Obviously, nagging for an advance does just the opposite.
“Thanks for that rock you hurled through my window boss. But any news about my advance?”
Have you witnessed any of these debt issues before? Comment and let us know!
Get more Personal Finance tips and tricks on www.MoneySmart.sg
More From MoneySmart