Debt reductions bigger, available to more peopleLow-income households with small loans overdue for more than 10 years will from Monday be able to apply for an 85 percent reduction in principal.
The Financial Services Commission (FSC) announced the special debt reduction program on Tuesday.
Families stuck for years in the quicksand of indebtedness are the target of the program, which is designed to give them a second chance.
Under the existing debt-reduction program - which is for people with incomes less than 60 percent of the nation’s medium income - 20 to 70 percent of the principal is written off for those that have steadily paid off readjusted debts of less than 15 million won ($12,850).
Under the new program, the maximum write off has been raised to 85 percent and the repayment period has been shortened to three years.
“Usually the debtors that were under this program had to pay an average 40,000 won to 50,000 won per month for seven to eight years,” said a FSC official. “As it took so long, it had little effect on these debtors in helping them make a rebound.”
The FSC official added that the new program is to provide more support to low-income households shackled by small amounts of debt who are committed to paying their obligations.
The government is also expanding its debt write-off programs to those living on government subsidies, recipients of pensions for people with severe disabilities and those 70 years old or older.
People living on the smallest incomes, including recipients of pensions for disabilities, will get 80 to 90 percent of the principal written off when they are overdue for more than three months. The size of the loan is irrelevant for them.
For those with debts under 15 million won, as much as 95 percent will be written off.
A similar rule applies to older people earning under 60 percent of the medium income. They get up to 80 percent of their debt written off regardless of the size of the debt. But they can get as much as 90 percent written off if the amount is less than 15 million won.
People receiving government subsidies earn less than 30 percent of the medium income. For a single person, the threshold is 512,102 won a month. For a family of two, it is 871,958 won. For a family of four, the monthly income threshold is 1.38 million won, 30 percent of the 4.6 million won.
For people who receive government disability pensions, they are eligible if they earn 1.2 million won a month as a single person and 1.95 million won if married.
Individuals making less than 60 percent of the medium income for a single person earn 1.02 million won, while for a family of two, it is 1.74 million. For a family of four, 60 percent of the median income is 2.77 million won a month.
The FSC estimates individuals eligible for the expanded loan reduction program to be around 3,500 a year. It added that while that is not many people, the total benefitting from the program could increase.
BY LEE HO-JEONG [firstname.lastname@example.org]
More in Finance
Color of Chuseok
Kospi tumbles to 7-week low as economic prospects dim
BC Card opens big data lab in Busan
Bank of Korea expands support for small businesses
Kakao Bank to start preparing to go public