Young Koreans flock to debt restructuring programs amid economic downturn

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In the face of a challenging economic climate, an increasing number of individuals in South Korea are turning to personal debt restructuring programs for support. Of particular concern is the remarkable rise in applications from young adults in their 20s and 30s.

According to data from the Credit Counseling & Recovery Service (CCRS) on Thursday, more than 63,000 new applicants availed themselves of these programs during the first quarter of this year.

Notably, approximately 22,000 of these applicants were from the 20s and 30s age bracket, making up a 35.4 percent of the total. This surge marks the highest proportion of young applicants since the onset of the Covid-19 crisis in 2020.

The number of applicants in their 20s has been steadily on the upswing, climbing from 14,125 in 2020 to 14,708 in 2021, and further to 17,263 in 2022. This demographic has displayed the most rapid growth rate compared to other age groups.

In the first quarter of this year alone, 8,043 applicants in their 20s sought assistance, reaching nearly half the total number of applicants recorded throughout last year. Meanwhile, applicants in their 30s witnessed a 19 percent increase from the previous year, surging to a figure of 31,202 in 2022. Strikingly, in the first quarter of this year, the number of applicants in their 30s already soared to 14,345. Should this trend persist, experts project that the total number of applicants will increase by a staggering 50 percent or more compared to last year.

Noteworthy is the fact that the income levels of CCRS applicants are also witnessing an upward trajectory. While the number of applicants earning “less than 1 million won ($750) per month” experienced a 23 percent decline from the previous year from 40,140 to 30,839, those earning “more than 3 million won” nearly doubled, jumping from 6,149 to 11,435 during the same period.

According to data from Statistics Korea, the average monthly income for wage earners in 2021 stood at 3.33 million won, with a median income of 2.5 million won. These figures shed light on the significant number of individuals grappling with debt, even among those whose income levels are on par with or above the average.

In the first quarter of this year, applicants with a monthly income of “less than 2-3 million won” accounted for a considerable 21 percent of all applicants, surpassing the proportion of those with a monthly income of “less than 1 million won”.

Acquiring additional loans has become increasingly challenging for individuals burdened with low credit scores or multiple existing debts. Credit card companies and savings banks, keen on curbing delinquency rates, have adopted a more cautious approach to loan approvals.

Korea Federation of Savings Banks reports that the volume of loans made by savings banks to people with credit scores in the bottom 50 percent plunged 40 percent on year to 1.685 trillion won in the first quarter of this year. Moreover, the collective value of card loans managed by seven major credit card companies during the first quarter dropped by 30 percent to a total of 10.23 trillion won, a stark contrast to the previous year’s figure of 14.61 trillion won.