I held a job as a debt collector for banks in my early years as a working adult. I met your mum in my first Debt Collector job in Standard Chartered Bank. What I learned as a Debt Collector shaped me to become who I am today. There are many moment I am thankful for, lessons and experiences I learned to help me be prudent and thrifty.
Never have an unsecured debt
This is Lesson One. I was handling credit card and Personal Line of Credit debts. In lay person terms, the banks will give you a sum of money to spend, how they decide the amount you get to spend, is determined by the job you have. There is no collateral tied to it, hence the term ‘unsecured’. This is a kind of high risk, low returns, highly addictive, lifestyle gambling. And the bankers always wins.
One morning when I started my work and I remembered taking a call from a lady, which was odd. Usually, no debtors will call up the creditors early in the morning. This lady was calling in to inform me that she has declared bankrupt on her own. She even gave me her bankruptcy number. What else can the bank do? Her credit card bills was barely a month overdue and it was all over, to be written off as bad debt.
With a little more probing, we realized that she has taken a credit increase to cover her wedding expenses, which went into tens of thousands. It was about 3 times her normal limit. Usually banks would give a temporary limit increase for events such as weddings where there will be a large amount of cash transactions. The banks will expect the card member to use the monies they collected from their Ang Pows to pay off those excesses. It was a risk banks take. and usually there is no such issues. until I met this young lady. Our checks with other banks realised that she did the same for them, about another 2 more banks was duped by her into this trap.
These was before the days of a centralised system where the banks can check on a specific person’s credit history and ratings. In my time, we do call up our fellow debt collectors with other banks to trade information.
Spend within your means
Well, this is a no brainer, but like all no brainers, many people never use their brain to prevent this from happening. While there are many people talking about financial literacy, it is simply a matter of common sense. If you earn S$5,000, your spending is anything less than S$5,000. With the allure of 2 times your monthly income, your credit card limit is technically S$10,000. I have seen so many youngsters, particularly from the uniformed services, totally exhaust the credit limit. We are talking about soldiers, sailors, airmen, who earned perhaps a hypothetical S$4,000, getting credit cards and Line of Credits with a total of S$16,000 (S$8,000 for a credit card, and S$8,000 for a Line of Credit) and spend all that in a matter of 3 months. That is with one Bank, these folks usually will apply with a couple of banks and you can imagine the amount of debt this person have to bear.
Spending within your means, also means that you have the cash on hand to pay off everything you spend in your credit card. Heck, just pay in full, instead of the partial payment and let the rest of the balance roll, and incur bank charges. There are people out there who are owing the banks large amount of credit card bills, and paying a minimum; and when the bank decided sot cancel the card, and demand a full settlement, these folks, playing the rolling game, will end up paying through their noses, when their house of (credit) cards come tumbling down.
Be careful who you give your card to
This has to do with a supplementary card. You see, if you have a card, you can actually share that card usage with another person, and that person, most of the time is someone you should be close to.
There are people out there who gave their card to friends, girlfriends, boyfriends, business partners, and without a control element, these people will do you a favour and spend on your behalf. And who will the bank comes a knocking? The person who’s name is on the card, not the person you gave the card to spend on.
While it is nice to flaunt your ‘wealth’, it is basically a useless ego trip, and when you flash your card, you are not flashing wealth, you are flashing credit, flashing debt. So it is not a cool thing to give your credit card to people you like, but not too sure if they are trustworthy.
Credit Cards are like fire
We use them, these modes of payments are convenient. But they are like fire, excellent servants, poor masters. I was thankful to have spend time in a Bank’s credit collections department to learn all these, and understand the pitfalls of trying to look wealthy by getting credit cards. Your mum and I were kept prudent through these experiences and I hope you boys will be able to learn from our experiences.