If you are struggling with a huge amount of credit card debt or personal loans, you may have recently received an invitation letter to apply for the Repayment Assistance Scheme (RAS).

We at GET.com will give you a brief overview of how this scheme can help those of you who are struggling to pay off your debts.

Here are two compelling reasons why you should take up that offer:

  1. 1. The Monetary Authority of Singapore (MAS) is gradually reducing the amount of unsecured debt that individuals can take on. If you have been rolling your debt by taking out a fresh loan to pay off a previous one, at some point that door will close.
  2. 2. The RAS reduces the amount of interest you have to pay on excessive debt, and this good deal won't be around forever. The application deadline is 31 December 2015.

What You Should Know About The Tightened Borrowing Limits

Since 1 June 2015, individuals with interest-bearing unsecured debt in excess of 24 times their monthly income for 3 months in a row will no longer be able to take on new debt.

This borrowing limit will be tightened to 18 times of monthly income from June 2017, and then to 12 times of monthly income from June 2019.

Note that this rule only applies to you if you:

  • Are a Singapore citizen or Permanent Resident;
  • Have an annual income below $120,000; and
  • Have net personal assets worth $2 million or less.

The total amount of unsecured debt that counts toward the limit does not include zero-interest instalments plans and unsecured loans for medical, business and education purposes.

How The Repayment Assistance Scheme Can Help

The RAS is a centralised debt repayment plan put together by various retail banks, credit card companies, and the Association of Banks in Singapore (ABS). It is administered by Credit Counselling Singapore (CCS).

The RAS helps borrowers who have unsecured debt in excess of 12 times their monthly income. It consolidates your excess debt across all your creditor financial institutions that are participating in the scheme.

And then it allows you to repay this excess debt at a lower interest rate of 5% per year, and over a fixed term of 8 years. (Credit cards generally charge interest rates of well over 20% per year if you don't pay off your bill each month. That's why we always advocate you don't carry any balance on your credit card bills!)

For the remaining amount of debt up to 12 times of monthly income, you will have to continue to repay this debt based on the interest rate charged by your lender.

A Few Other Things You Should Know About The RAS

To be eligible for the RAS, you have to be a borrower affected by the new limits on unsecured debt, i.e. a citizen or PR with an annual income below $120,000 and net personal assets worth $2 million or less.

You also need to have good repayment records with your lender, and you must have a source of income.

If you take up the scheme, you will not be able to continue borrowing unsecured debt from financial institutions. This restriction will be reviewed after you have successfully reduced your debt to less than 12 times of monthly income, or they are satisfied with their assessment of your credit-worthiness.

MAS estimated that about 32,000 borrowers would be affected by the new debt limits which kicked in this past June.

However, it was reported as at end-May, that only just over 1,000 borrowers had sought help, and about 400 borrowers with a debt of $24.5 million had accepted proposals under the scheme.

If you have been in two minds about whether to take up the scheme, hesitate no longer.

It will give you a huge boost in becoming debt-free.