People with more debt payment to make monthly than what they can afford could easily get into a deeper hole without proper help and planning.
A rule of thumb for debtors with multiple loan accounts is to pay off secured borrowings first to prevent losing assets, according to analysts. Mortgages or auto loans have greater priority than personal or credit card loans. Then if there is still some money left, they should pay at least the minimum amount due on the credit cards on time to avoid penalty or late payment charges and to keep credit line, first for the card holding the biggest debt.
Those already struck in a debt spiral without any hope of getting out could seek help from the "debt clinic", a programme initiated by the Bank of Thailand in cooperation with 16 commercial banks.
The debt clinic, managed by the Financial Institutions Development Fund's wholly-owned subsidiary Sukhumvit Asset Management (SAM), acts as intermediary between debtors and lenders in restructuring bad personal and credit card loans owed to the 16 participated banks in exchange for a lower interest rate.
The 16 banks are Bangkok Bank, Krungthai Bank, Siam Commercial Bank, Kasikornbank, Bank of Ayudhya, Kiatnakin Bank, Citibank, CIMB Thai Bank, TMB Bank, Tisco Bank, Thai Credit Retail Bank, Thanachart Bank, UOB Thai, Land and Houses Bank, Bank of China, and Industrial and Commercial Bank of China (Thai).
The clinic's pilot project has opened for registration since June 1, and is due to be expanded to non-banks under the central bank's supervision.
Who can join
Those who can join the debt clinic are regular income earners who failed to repay credit and cash cards, and personal loans with at least two banks, for more than three months before May 1.
The participant must be under 65 years old and their debt must not under legal process, while their principal plus unpaid interest must not exceed 2 million baht per debtor.
"Those who repay only the minimum due do not qualify for the programme [as they have not defaulted yet]. It is only for people who paid less than the minimum amount due or totally missed payment for at least three consecutive months," says Niyot Masavisut, SAM senior executive vice-president and acting president.
People are talking with Debt Clinic’s officers.
Participation in the debt clinic is also restricted to borrowers of the 16 commercial banks; those with credit card or personal loan debts to the banks' subsidiaries, such as Krungthai Card (KTC) and Krungsri Consumer Group, do not qualify for the programme.
Process
Interested persons must first check on the website www.debtclinicbysam.com whether they are eligible to join the programme. Qualified people can sign up for an online account that will be used for recording each participant's information.
After an account is created, the participant will have to fill in the application [pre-approve form] to join the programme. The application requires financial information, such as monthly income, extra earnings, expenses and existing debts, which will be used in calculating the payment terms of the restructured debts.
The participant is are also required to submit related documents -- a copy of ID card and household registration; debt information document from the National Credit Bureau (NCB); previous payslips of up to six months, documents declaring other income such as lease agreement and service contract; and debt statements and documents.
Mr Niyot says participants can submit the documents through both its website and at the debt clinic on the 12th floor of Lao Peng Nguan Tower 1. Debt information document from the NCB can be obtained at the NCB booth in the debt clinic on Tuesdays to Thursdays.
The clinic takes a few days to process the submitted documents. It will then set up a meeting among its employees to discuss the terms of payment, after which approval of the payment terms will be sought from the creditors. When the whole process is completed, the participant will be called up to sign the debt restructuring agreement.
Mr Niyot says the whole process, from registering on the website to signing the agreement, will take no more than one month.
Lower debt payment
After entering the programme, participants are required to repay the debt only through SAM, with their restructured debt carrying interest rates of 4-7% for up to 10 years -- far below the central bank's ceiling interest rate for credit cards of 20% and personal loans of 28%. The lenient conditions and the low interest rate will significantly ease participants' financial burden.
Participants are only subject to principal payment, while accrued interests and fine will be given back when the debt is paid off.
Mr Niyot says repayment will be based on monthly income minus expenses and other debt payments declared to the clinic, while debtors' disposable income and expenses are determining factors for interest rates.
Unlike the normal practice of loans that charge those having low debt-servicing ability with higher interest rate than people with high repayment capacity, the clinic's participants with low debt repayment ability will be subject to lower interest rate.
For example, participants earning less than 30,000 baht a month with 55% expenses are subject to a 4% interest rate per annum; those with monthly income of 30,000 to 50,000 baht and 50% expenses are charged at 5%; those earning 50,000 to 100,000 baht with 45% expenses are required to pay 6% interest rate; and those earning more than 100,000 baht a month with 40% expenses are subject to 7% interest rate.
However, those in the scheme must sign an agreement that they will not run up additional debt for at least five years. In case of unexpected incidents, such as losing their jobs or encountering additional expenses, participants are advised to negotiate with SAM for a possible repayment suspension until they are back on their feet. This will be considered on a case-by-case basis.
The requirement barring the participants from accumulating more debt is aimed at preventing them from defaulting again. Breaching it will disqualify participants from the scheme and to pay for principle, interest and fine.
Mr Niyot says the programme targets those who failed to repay debt for more than three months before May 1 to eliminate the moral hazard issue, preventing people from deliberately failing debt payment to join the programme.
Given that the model has already been approved by the 16 lenders, SAM takes responsible only to verify the given information. With the restructured debt, the scheme's participants will only pay off 3,000-5,000 baht a month.
To facilitate the debt repayment, SAM plans to issue cards to each participant for repayment at five commercial banks: BBL, KTB, SCB, KBank and BAY.
The scheme is set to be extended to cover bad credit card and personal loan of non-bank firms in the future. However, Mr Niyot strongly discourages debtors from making intentional default in the hope of taking advantage from the low interest rate that the programme offers, as details for the later stage are not finalised yet.
"We advice debt defaulters who do not qualify for the programme to discuss with their creditors, who could offer some financial products or debt restructuring to turn them into performing debtors," Mr Niyot says. However, SAM is also willing to give advice to those who do not qualify for the scheme, he adds.