By Jessica Cheam

CONSUMERS who have racked up debt are more likely to make paying back their banks their first priority before tackling other loans, according to a new study.

DP Credit Bureau, which conducted the study, said consumers tend to fall behind when repaying non-bank debt first because, according to its managing director Chen Yew Nah, 'many believe non-bank lenders will be less vigilant in pursuing late payments or in taking steps to end the line of credit'.

The study also found that younger people tend to get into debt more than older folk.

This study is the first in Singapore to compare bank and non-bank debt repayments to establish a link between the failure to pay a debt owed to a business and a default on a bank loan.

This data will be used by banks to identify customers who are likely to fall behind in their repayments, said DP Credit Bureau.

The study showed that 32.5 per cent of consumers slow in repaying debts to a business will fall behind in their bank loans within seven months.

This indicates that when consumers are slow in paying minor debts, they eventually have trouble paying off larger ones, said DP Credit Bureau .

The study, based on payment records of more than 600,000 individuals provided by DP Credit Bureau's members, covered the period from last July to February - when the effects of the global economic downturn were felt.

Non-bank lending data came from a range of industries offering credit loans to consumers, including retail, credit co-ops, education providers and leasing companies.

The study also showed that 44 per cent of those who fell behind on repayments were aged between 26 and 35.

Considering that this group made up 33 per cent of those polled in the survey, it shows that a high proportion of those in debt are from the younger generation.

This is a major concern, said Ms Chen. She advised consumers facing problems to talk to creditors early to explain their financial position, before they run into trouble.

'Banks and other credit providers do not want to take costly steps like litigation to recover debts, and many have the flexibility to vary interest rates, payment terms and the length of debt repayment period,' said Ms Chen.

As well as finding that younger people were more likely to be in debt, the study also found that men outnumbered women by a ratio of three to two.

Only 4 per cent of those in debt were business owners, indicating that debts tended to be personal and not incurred by an individual's business activities.

Those in debt also owed four times more to their bank creditors than to their non-bank ones. The average bank debt was $4,615 against a non-bank debt of $982.

Many may have used credit to buy material goods and gadgets to complement their lifestyle, said Ms Chen.

'A sudden loss of income due to retrenchment, pay cuts or reduced bonuses may be placing pressure on their ability to meet their financial obligations,' she added.

This article was first published in The Straits Times.