1020 Trapped in Revolving Debt... "Increased Risk of Delinquency"

20s Age Group Growth Rate 52% Over the Past 3 Years
High-Interest Service Revolving Credit... Increased Risk of Delinquency

[Asia Economy Reporter Ki Ha-young] Over the past three years, the balance growth rate of 'Revolving Payment Amount Carryover Agreement (Revolving)' among people in their teens and twenties has surged sharply. Although the scale is smaller compared to other age groups, concerns have been raised that financially vulnerable groups such as college students and young workers may fall into the 'swamp of delinquency' by borrowing to make ends meet.

According to data on revolving carryover balances and delinquency status submitted by the Financial Supervisory Service to Jeon Jae-soo, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, the growth rate of revolving balances among those in their teens and twenties was the steepest over the past three years. For those under 20, the balance skyrocketed by 120%, from 196.19 million KRW in 2017 to 431.20 million KRW in the first half of this year. For people in their twenties, it rose 52%, from 280.6 billion KRW to 426.8 billion KRW. Considering that the total revolving carryover balance across all age groups increased by 13%, from 4.879 trillion KRW to 5.515 trillion KRW during the same period, the use of revolving credit among the financially vulnerable 10-20 age group has surged.

By credit rating, the revolving payment balance for payment-type revolving credit was highest in grade 5 at 1.1004 trillion KRW, followed by grade 4 at 948.2 billion KRW, and grade 6 at 903.2 billion KRW. For loan-type revolving credit, the carryover balance was highest in grade 6 at 97.5 billion KRW, followed by grade 7 at 88.7 billion KRW, and grade 5 at 53.2 billion KRW.

Revolving credit refers to a service where customers pay a certain percentage of their lump-sum card payment each month, and the remaining amount is carried over to the next month. While it may be similar to installment payments, revolving credit is a high-interest service. Payment-type revolving credit carries an average interest rate of 18%, and loan-type revolving credit carries an average of 21%.

Above all, revolving credit poses a high risk of delinquency because unless the remaining amount is paid off in full and the service is canceled, the debt never ends. This is because not only the amount carried over from the first month of use but also a portion of the monthly spending continues to be carried over, causing the principal to increase continuously. If people start using revolving credit to avoid card payment delinquency without knowing this fact, they inevitably end up relying on card-to-card transfers or falling into the swamp of delinquency.

Credit card companies are also conducting marketing related to revolving credit to increase loan customers. A representative example is offering cashback to customers who apply for revolving credit. Shinhan Card and Lotte Card provide cashback benefits for new revolving credit applications. Additionally, they encourage usage by offering extra incentives to card planners who obtain customer consent for revolving credit. They explain that if the agreed payment ratio is set to 100% and the account balance on the payment date is sufficient, no fees will be charged.

Assemblyman Jeon said, "Following mid-credit borrowers, the use of revolving credit among people in their teens and twenties has increased, resulting in about a 5.1% increase in credit card companies' revenue from revolving credit." He pointed out, "While the payment of amounts due is postponed by the revolving service, seemingly easing the debt burden, interest is added to the card payments later, increasing the debt burden. If vulnerable groups rely on revolving credit, they face a high risk of falling into the swamp of delinquency."

This content was produced with the assistance of AI translation services.