Credit card debt hits record as the young punt
Credit card balances hit a record high in 2020, with a total of 32 trillion won ($28.5 billion) of such credit extended in the country.
Borrowings were led by people in their 20s, using the money largely for investment, and people in their 60s, who relied on credit cards to make ends meet.
The total outstanding credit card debt held by seven card companies— Shinhan Card, KB Kookmin Card, Samsung Card, Hyundai Card, Lotte Card, Hana Card, and Woori Card— stood at 32.05 trillion won as of end of last year, according to office of the Justice Party lawmaker Jang Hye-young, based on data provided by the Financial Supervisory Service (FSS),
That is a record high, and up 10 percent on year.
By ages, outstanding credit card borrowings by people in their 20s was some 1.14 trillion won as of end of last year. That’s an 18.5 percent increase on year, and this is the highest on-year increase rate among all age groups.
Experts say more people in their 20s took out loans on their cards last year to “invest in stocks and real estate."
“Lots of people in their 20s started borrowing on their credit cards since September last year, and that is the time when the Kospi and stock prices have hit their peaks,” said a source from a card company.
The source added that it is likely that “demand for young people who wish to borrow money to make investments increased.”
“It seems like people in their 20s, whose credit ratings are relatively low compared to older people, chose credit card loans to secure seed money to continue their investment practices,” said Yoon Jong-mun, research fellow at Credit Finance Research Institute.
People who are aged 60 or older also borrowed more.
The outstanding credit card borrowings of people in their 60s stood at 5.129 trillion won as of end of last year. The number is close to the amount that people in their 30s borrowed, which was some 5.133 trillion won.
Market experts say more borrowing by older people means more elderly people are struggling financially due to the Covid-19 pandemic.
“It’s highly likely that more elderly Koreans depended on credit cards to survive last year as lots of their jobs were cut amid the coronavirus pandemic,” said professor Kim Sang-bong, who teaches business at Hansung University.
More people in their 20s and 60s used “revolving services” as well.
Revolving service allows borrowers to keep rolling their balances over to the following month until they are fully paid off, as long as they pay a minimum installment of between 5 and 10 percent each month.
Revolving debt stood at some 5.65 trillion won as of end of last year, down 2.5 percent on year. But when only considering people in their 20s and 60s, the amount was up more than 6 percent on year.
Interest rates for credit cards are usually higher than for unsecured loans. Card companies can apply a maximum of 24 percent on credit cards.
According to The Credit Finance Association, some 45 percent credit card debt outstanding from Shinhan Card was priced between 14 percent to 18 percent. Only 14 percent of all borrowers had rates of under 10 percent.
“More credit card debt can also be seen as a warning sign to the overall economy,” said Sung Tae-yoon, economics professor at Yonsei University. “It is essential that people should manage their sizes of debts.”
Some say it’s too early to worry about the economy.
“It’s true that the amount of credit card debt sharply rose last year, but amount of cash advances and revolving service debt actually declined,” a spokesperson for Financial Supervisory Service’s Credit Finance Supervision Department. “It's too early to make conclusion that this is a warning signal.”
BY YEOM JI-HYEON, HONG JI-YU AND CHEA SARAH [email@example.com]