Options are available to get out from under crushing debt

Credit cards are accepted at most stores today, making it easy to rack up debt. THANARAK KHUNTON

Living within your means is a maxim handed down from one generation to the next, but it can be hard to achieve and easier said than done.

Most workers live paycheck to paycheck as they struggle with bills, rent, mortgage payments, feeding themselves and their family, or just maintaining a social life. And they risk coming up short to cover large expenses that could eventually lead them into a debt trap.

With credit cards, the main feature of "buy now and pay later" can encourage impulse purchases. Cardholders can rack up debt if they fail to curb their spending habit. It's also easy for credit card debt to spiral out of control if cardholders don't pay their balance in full, as credit cards can charge as much as 18% interest.

For those who are drowning in credit card debt, lifelines are available.

Credit card refinancing

The most effective way to eliminate credit card debt is by seeking a lower-interest loan to pay off the high-interest debt, better known as refinancing.

A personal loan is the best option for those who are looking to refinance credit card debt. Almost all credit cards charge interest at the maximum rate of 18% set by the Bank of Thailand, and some financial institutions offer personal loans at a cheaper rate than for credit cards.

Another benefit is that a personal loan is paid off at the end of the term, while credit cards keep you in a revolving payment arrangement in which there is potentially no end. A personal loan requires fixed monthly payments, meaning debtors will have the same monthly payment each month until the loan is fully repaid.

At present, CIMB Thai Bank (CIMBT) has the best deal for unsecured personal loan products in the market, but they are offered only to workers with a regular monthly income.

Borrowers who earn less than 30,000 baht a month can seek a CIMBT personal loan at up to 1.5 times monthly income, while those earning more can ask for up to five times monthly income, but not exceeding 1.5 million baht.

The bank offers interest rates for personal loans in the range of 9-18%, depending on the loan maturity and the borrower's regular monthly income.

The cheapest rate of 9% is for workers earning a regular income of at least 20,000 baht a month and seeking a 12-month loan term.

For a 24-month maturity, 11.84% is charged for those earning 30,000 baht a month or higher and 12% for those earning at least 20,000 baht a month. But the 11.84% rate is offered only to those who have held a credit card issued by any bank for more than 24 months.

Those who want the 36-month maturity programme are charged 13.33% for workers with a monthly income of at least 50,000 baht and 15% for those with monthly income of 30,000 baht and higher.

The bank also offers an interest rate of 18% for those earning at least 20,000 baht and requesting a 60-month loan term. But this option is suitable only for those who want a long repayment period, as the interest rate is the same as a credit card's.

CIMBT executive vice-president Onanong Udomkantrong says those with a cumulative credit card debt of three times their monthly income or those whose monthly debt payment leaves them tight on cash should seek a lower-rate loan to refinance the debt and alleviate their monthly debt burden.

Let's do some rough math: a cardholder who now pays just the minimum due on a credit card can halve interest costs by refinancing with a personal loan at 9% interest.

Based on a credit card's 18% interest rate, those with 10,000 baht in overdue credit card debt are on the hook for 150 baht in interest per month, Ms Onanong says. The interest charge is 1,500 baht a month if the overdue debt reaches 100,000 baht.

For those who have multiple credit cards with various balances, combining all that debt into one low-cost instrument is a smart plan, as a single payment with a lower interest rate can enable them to pay off the debt faster.

"A debt-servicing ratio of no more than 30% is an appropriate level that makes a debtor's financial liquidity not too tight," Ms Onanong says, adding that those who really want to get out of debt must avoid taking on further debt.

Citibank Thailand is among the lenders offering attractive personal loans for refinancing credit card debt.

Citi personal loans charge interest in the range of 13.99-20.99% for civil servants, workers at state enterprises and corporate employees with a monthly salary of 30,000 baht, and existing Citi customers. The interest rate depends on the personal loan's credit amount.

Borrowers can seek a personal loan of up to five times their salary, but not exceeding 1.5 million baht. The loan repayment period is 12-36 months.

TMB Bank's Cash2Go offers a 9% interest rate for the first three months, 16% for those who borrow between 50,000 and 99,999, and 14% for those borrowing 100,000 baht or more.

To be eligible for a TMB personal loan, borrowers must be state officials or those working at state enterprises and companies, and they are required to apply for the bank's direct debit service and make at least five transactions a month with a TMB All Free account.

Apart from taking out a personal loan to refinance credit card debt, debtors can borrow against their home or vehicle or against pension money if a civil servant.

For instance, the Government Savings Bank's Sai Thong Loan for miscellaneous purpose charges 1.75 percentage points on top of the minimum retail rate (MRR), equivalent to 8.75%, for borrowers with a personal guarantee.

Borrowers placing land or a home as collateral can get a rate at MRR or 7%. Those with a personal guarantee can apply for a loan of up to 300,000 baht, while those with asset collateral can receive up to 5 million.

Moreover, the debt repayment period for borrowers with a personal guarantee is up to seven years, while the period for those who have a home or land as collateral is up to 25 years.

These loans are offered only to those with an occupation and income.

Debt Clinic

In the event that unsecured loan borrowers have already defaulted, they can restructure bad debt through the Debt Clinic, a scheme that pools unsecured bad loans from 16 local and foreign commercial banks with the aim of turning them into performing assets.

Under the scheme, the Financial Institutions Development Fund's wholly owned subsidiary, Sukhumvit Asset Management (SAM), acts as an intermediary between debtors and lenders in restructuring bad personal and credit card loans owed to the 16 participating 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, Citi, CIMBT, TMB, Tisco Bank, Thai Credit Retail Bank, Thanachart Bank, UOB Thai, Land and Houses Bank, Bank of China, and ICBC Thai.

Those eligible to join the Debt Clinic are regular income earners or the self-employed who failed to repay credit cards or personal loans with at least two banks before April 1, 2018.

Participants must be under 65 years old, their debt must not be undergoing legal process, and principal plus unpaid interest must not exceed 2 million baht per debtor.

After entering the programme, participants are required to repay the debt through SAM only, with their restructured debt carrying interest of 4-7% for up to 10 years -- far below the central bank's ceiling interest rate for credit cards of 18% and for personal loans of 28%.

The lenient conditions and low interest rates can significantly ease participants' financial burden.

An EDC machine receives a card. Walailak Keeratipipatpong

A signature pad and EDC machine connected to a POS terminal at Tesco Lotus. Walailak Keeratipipatpong