Tips for managing debt

Exercising a little financial discipline can go a long way towards ensuring your peace of mind, says the National Credit Bureau.

Now that the New Year celebrations have ended, it may be time for loan repayments and more determined debt management to begin for some people.

Banks are offering attractive deposit interest rates and everyone should take advantage of it to improve their cash management. PATTARACHAI PEECHAPANICH

To this end, Surapol Opasatien, chief executive of the National Credit Bureau (NCB), offers some tips.

First, if you are a debtor, you should not secure more loans. After that, you should pay off debts immediately when you have money. When you get your salary, the first thing you should do is allocate some money for savings.

"Good cash management is very important when you are still in debt. If you have discipline and stick to the plan, then your financial situation will be strong," said Mr Surapol (see chart).

Financial discipline is important to help borrowers avoid a "debt trap". To maintain financial discipline, you should constantly remind yourself of these four things before seeking a loan:

- Borrow only when it is necessary and in a proper amount.

- Use the loan reasonably and follow the debt objective precisely.

- Spend the money based on reason rather than emotion.

- Pay debts on time.

"Basically, financial discipline reflects your discipline and spending behaviour. When you have debts, you must pay them," Mr Surapol advised.

A recent Abac poll found that financial problems including overspending and debt are the chief cause of tension among people surveyed (58%).

Before becoming a borrower, you should check your financial health with the NCB through several channels (see chart).

Mr Surapol recommends that if you want to apply for a bank loan, you should check your credit record first to be sure about your credit history, as you may have to answer some questions from bank or financial institution staff.

Even if you have no plans to borrow now, it does not hurt to check your credit record once in a while to make sure your financial information in the eyes of financial institutions is correct and up-to-date.

"For example, you should check account numbers, making sure there are no unusual accounts appearing in your report. Closed loan accounts and debt clean-up are also important to check up on," said Mr Surapol.

He said credit checking and financial discipline are taking on greater importance as household debt rises and the consumer finance business experiences strong growth.

Normally, debt payments for the general public can be categorised in five steps based on priorities.

The first step is loan shark payments, followed by trade accounts payable, public utility bills, employee wages and finally bank loans.

"That's why banks have set strong lending conditions. They know that people may repay their debts last," said Mr Surapol.

Household debt climbed in last year's third quarter, and Thais' ability to repay their debts fell due partly to the government's first-time car buyer and homebuyer schemes.

Outstanding debt for personal consumption in the quarter rose 20.4% year-on-year to 2.74 trillion baht compared with increases of 15.7% and 17% in the first and second quarters, respectively.

A report by the National Economic and Social Development Board (NESDB) showed home loans also rose by 10.3% in the third quarter, up from 9.7% in the second quarter and 9.9% in the first.

Automobile loans increased by 33.6% in the third quarter against 24.5% in the second quarter and 20.2% in the first.

Outstanding debt for personal consumption or other purposes also surged by 30.3% in the third quarter compared with 27% in the second quarter and 25.9% in the first.

The NESDB said outstanding debt for personal consumption without collateral and leasing amounted to 240 billion baht in the quarter, up by 15.1% year-on-year, while debt incurred from credit cards totalled 226 billion, up by 9.56%, mostly for post-flood purchases of consumer goods and housing repairs.

About the author

Writer: Somruedi Banchongduang
Position: Business Reporter