Reducing household debt


-Written by Yeajin Shim

Whenever I see the news, I never miss the word ‘household debt’. Household debt in Korea peaked at 980 trillion won, posing a serious risk to the Korean economy; high household indebtedness reduces consumer spending and hurts economic growth. It’s not an issue of today. Household debt has been ballooning despite the efforts of the government and financial authorities. According to the Financial Services Commission, however, growth rate of household debt reduced to 5.5%, which is 4.1% lower than that of 2011. Since the policy to reduce household debt was implemented in 2011, the FSC evaluates that the policy has brought about quite fruitful result: slowed growth rate of household lending and improved debt structure.


The FSC has been working on to prevent household debt from posing systemic risk, but in two years of implementation the FSC sees that systemic risk is pretty unlikely. So now, it changed its focus to improve household repayment. To address overall household debt problem, the FSC has laid out specific measures in both macro and microscopic point of view. The FSC will not only carry out policy which prevent systemic risk contagion, but also help improve household income and repayment capacity.
First of all, housing mortgage loan maturity will be lengthened from 1-3years to 5-20 years. Long-term mortgage loan will be provided more. It is to save people from facing imminent repayment due and give more time and opportunity. Along with this measure, there will be strict regulation on nonmonetary institution since they pose more serious threat to household debt with high interest rates and shorter repayment due period.
Secondly, there will be continuous support to those with low income or house poor with debt settlement. Reverse mortgage which is as known as ‘Joo-taek Yeon-geum’ will expand its coverage. (Reverse mortgage is a program for senior citizens who own homes but do not have cash income to receive monthly pensions in their golden years by putting up their houses as collateral.) Besides, there will be massive support for the victim of joint surety, failed entrepreneur, and credit delinquent to re-enter society and participate in economic activities. This is all the efforts to rectify household income structure, which is a preemptive measure to ease the burden of household debt. In this case, however, there is a limit in financial measures so that collective measures will be taken along with other government institutions.


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