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Korea's current household debt problem is more serious than it was during the financial crisis of 1997, because households that borrowed money from financial institutions this time have a bigger ratio of interest payments to monthly income than they had in 1997.
In a report released Wednesday on household debt, Dr. Lee Joo-ryang of the Hyundai Research Institute said, "In a survey of 515 households that borrowed money from financial companies, the average ratio of interest payments to monthly income was 14.6 percent, up from 11 percent in the financial crisis of 1997. So it can be said the current situation is more dangerous than the financial crisis."
Households should keep the ratio of interest payments to income lower than 10 percent to stay economically healthy, the report said. "If interest rate continues to rise and real estate prices fall, loan payments will seriously strain households. There is also a high possibility that household debt will lead to insolvency."
In the survey, 47.0 percent of households with debt said their current debt level is excessive. Some 35.3 percent and 27.3 percent of respondents said they can't afford to enjoy cultural events or save for their retirement because of high interest payments.
Some 30.6 percent of households that earn less than W30 million (US$1=W938) a year said they are unable to pay back their loans with their current income. The survey also found that 14.5 percent of households with debt plan to sell real estate assets to repay loans if their interest rate increases by two percentage points.
Dr. Lee said, "In order to prevent households from becoming insolvent, the government should help reinvigorate the economy to increase household income. Government efforts are needed to stabilize real estate prices and control the increase of interest rates."
(englishnews@chosun.com )
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