Koreans applying for debt management in Q1 highest since 2005

[Image source: Gettyimagesbank]

The number of South Koreans seeking debt restructuring in the first quarter was the highest in 18 years as they failed to pay back their debts on time on rising interest rates and weak economy.

According to the Credit Counseling & Recovery Service on Monday, the number of new applicants that registered for debt adjustment reached 46,067 in the first quarter, up 44 percent from the same period a year ago. That’s the largest number of quarterly applicants since 2005.

The Credit Counseling & Recovery Service offers three debt adjustment services depending on the overdue period - a rapid debt adjustment for those with a payment that is less than 31 days overdue, a pre-workout for those with payment that is more than 30 days overdue but less than 91 days overdue and individual workout for those with payment that is more than three months overdue.

The number of borrowers with a short-term overdue period is on a sharp rise this year, raising concerns that more vulnerable financial consumers will apply for debt settlement in the coming months, leading to a rise in the overall delinquency rate. Rising delinquency rate could eventually lead to an increase in the number of applicants for pre-workout and individual workout as more debtors are prone to more than 30 days of overdue payment.

“Many of the applicants are those that endured the high interest burden last year but are not able to continue with the payments this year,” said an unnamed official from the Credit Counseling & Recovery Service. “There are also those with very low credit scores due to the overdue payments.”

In the first quarter, 10,338 people with debt payment that is less than 31 days overdue applied for the rapid debt management service, up significantly from 2,000~4,000 in the quarters until 2021.

The number of debtors with payment that is more than 30 days overdue but less than 91 days overdue that applied for a pre-workout reached 10,945 in the first quarter, nearly doubled from 5,993 in the same period a year ago. Pre-workout allows a full exemption in overdue interest and the annual interest rate is adjusted to a maximum of 8 percent.

The number of people that applied for individual workout reached 24,784 in the first quarter, up 10 percent from the same period a year ago. The number of applicants for the service had exceeded 26,000 in 2020 following the outbreak of the pandemic.