By Lorna Tan, Senior Correspondent

If you have developed the bad habit of rolling over your outstanding credit card bills instead of paying them in full, you have plenty of company in Singapore.

You would have contributed to the mind-boggling $3.68 billion in credit card debt chalked up by card users last year alone. Latest statistics show that this mountain of debt grew 9.5 per cent from 2008.

And do not blame all of the increase on new cards issued last year: They grew by a smaller 6.7 per cent.

So what are the likely causes of this crippling debt pile?

Ms Tan Huey Min, assistant director at Credit Counselling Singapore (CCS), attributed the spike to overspending as well as pay cuts and job losses as the recession bit hard. She said other reasons included gambling, medical bills and renovations.

In fact, last year was an unwanted 'record' year for CCS, which counselled nearly 1,300 people, almost double the 714 in 2008.

Based on CCS statistics, a typical debtor takes home $2,700 a month and owes about $70,000 to seven banks. That translates into two years and two months of his take- home pay.

According to Ms Tan, debtors can be classified broadly into four categories:

# Hard-luck cases: They are usually saddled with job-related woes and have been hit by pay cuts or retrenchment. This category includes those burdened with high medical expenses.

# Big spenders: These people spend beyond their means so that their monthly expenses exceed their monthly income.

Citibank noted that some customers adopt a 'sale' mentality. They buy lots of items at retail sales believing they are saving money. But they buy more than they can afford and pay only the minimum amount on their card each month.

'As such, their credit card balance continues to grow, along with their minimum amount payable. Meanwhile, they are being charged interest on the balance. If only the minimum payment is made on a significant balance, it can take years to pay off the full debt,' cautioned Citibank.

Since last July, the bank has been promoting responsible credit management through its 'Use Credit Wisely' programme.

# Muddle-headed people: These people might have given loans to others using their credit facilities, or started a business with credit cards or credit line facilities.

'If a person wants to 'help' a friend financially, it is advisable to use his own savings. If he doesn't have sufficient savings and still wants to (help), then perhaps he should calculate and ensure that he himself has the means to repay the borrowed sum,' said Ms Tan.

Those setting up a business should apply for a business loan or get a loan from relatives and friends. Few businesses will achieve a return that is more than the 24 per cent interest rate charged by credit cards.

Even if they do, the 24 per cent will only repay the interest, and not even the principal borrowed on the credit card, she added.

# Punters: These people love a bet through various means like soccer betting, casino, Toto and the 4-D lottery, or they speculate in shares.

Such debtors typically look only at the affordability of making the minimum monthly payment instead of the total outstanding debt.

'This illusion coupled with adverse income changes such as job loss and pay cuts, will trigger the debt problem and render it out of control,' she said.

1. Eight tips to use credit cards wisely

2. Questions to ask yourself

3. Tips for debtors

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Here are eight tips to use credit cards wisely:

# Draw up a budget: Take some time to come up with a simple budget. Ms Tan's advice is to list the monthly expenses that you intend to pay with a credit card such as petrol, eating out and grocery shopping. Add up the sums to be charged to the card. Keep track of expenses charged and ensure they do not exceed the budgeted sum.

# Set a monthly limit: Be disciplined about how much you want to spend on your credit card monthly.

Avoid spending up to your full credit limit as it is prudent to reserve a portion for emergencies, said Ms Helen Neo, Maybank Singapore's head of consumer banking.

# Avoid impulsive buys: Try not to use your credit card to purchase 'unplanned for' items, just because you can do so. Shop as carefully with credit cards as you do with cash, said Citibank.

# Pay your bills on time: It is a good habit to pay your credit card bills on time so as to avoid late fees and to maintain a good credit record. Better still, aim to pay your bill in full, on time, every time.

'When you pay the full balance on your bill each month, you are taking advantage of an interest-free loan from the card issuer. Otherwise, your balance will be carried forward to the following month and the total sum unpaid will be subject to (interest),' said Citibank.

As an example, assume that an individual earns $3,500 a month and is given two months' credit facility on his credit card. He overspends by $500 each month and makes only the minimum monthly payment.

Ms Tan said that after 18 months, he would have chalked up close to $7,000 in debt, thereby hitting his credit limit. At this stage, he may resort to 'rolling' his balance by using other credit cards.

# Grace period to pay up: This is the time given by the credit card firm for you to pay your current bill without incurring interest.

It is usually 20-25 days, but keep in mind that it will apply only if you have fully settled your previous bill by the due date. If you roll over your balance, you will be charged interest on your outstanding balance plus any new transactions, said Citibank.

Pay up before the due date: By getting into the habit of paying at least five to seven days before the due date, you can avoid late fee or finance charges. That is why some customers prefer to arrange for monthly payments via Giro.

# It is not your money: The cash you run up using your card is the bank's money, not yours. Use it for convenience but do not treat it as a supplementary source of income, said Ms Tan. Use a card only when you can afford the purchase.

# Use debit cards and cash: You should limit the number of credit cards you accumulate based on your needs and repayment ability, said Ms Neo.

Anyone facing difficulty controlling his spending should use only debit cards and cash. Hold only one or two credit cards for convenience and travelling, said Ms Tan.

Mr Raymond Ng, president of the Association of Financial Advisers Singapore, suggests that a person should first use a debit card before progressing to a credit card.

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Ask yourself these questions

• Is there an annual fee?
• What is the minimum sum to pay each month?
• What is the grace period, which refers to the interest-free repayment period?
• If I roll over my statement balances, how much interest will I incur and how are the charges computed?
• If I pay less than the minimum sum required, what are the penalty charges?
• What are the charges for making cash advances in Singapore and abroad?
• What is my credit limit? Is that the same limit for a cash advance?
• What happens if I spend above the credit limit?
• What are my liabilities for unauthorised purchases if I lose my card?
• What action can the card issuer take if I fail to pay up?
• When and how will I be informed if the terms and conditions of the contract change?
• How can I make payments conveniently?
• Can I sign up for direct debit arrangement (Giro) for my credit card bills?

Source: Citibank Use Credit Wisely programme

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Tips for debtors

• Take stock: List all your cards, the debt on each and the minimum payment amount per card, said Ms Tan Huey Min, assistant director at Credit Counselling Singapore.
• Draw up a monthly budget: Make provisions for debt repayment, covering necessities such as utility bills, town council fees and income tax, then spend within the balance amount.
• Pay more than the minimum payment sum: Be more disciplined in your spending so as to increase available money for debt repayment, said Citibank.
• Make extra payment: If you earn a higher commission or receive a bonus, use the 'windfall' to make an extra payment to clear the outstanding balance faster, said Ms Tan.

  Avoid using credit cards: Stop using credit cards until the debts are paid off, Financial Planning Association of Singapore president James Sin said. Leave your cards at home.

• Approach your bank: Work out a mutually agreeable arrangement with the bank, such as an instalment plan to pay off the debt, said Maybank Singapore's Helen Neo.
• Seek professional help: You can seek advice on spending habits as well as reconstructing your financial plan to focus on debt management and cash flow planning, added Mr Sin.

lorna@sph.com.sg

This article was first published in The Straits Times.