80% of bankrupt young Koreans use loans to pay debts

An advertisement promotes a rehabilitation program for bankrupted individuals offered by a law firm in Seoul in this undated photo. Yonhap

More than eight out 10 of young Koreans who filed for bankruptcy after being unable to service debts had taken out new loans to pay off existing debt, a survey showed Thursday.

The survey, released by the Seoul Financial Welfare Counseling Center, indicates the serious nature of becoming indebted at a younger age, and the reliance on loans to pay existing debts increases their financial burdens rather than resolving them.

The survey looked at 1,374 individuals aged 29 or younger who filed for bankruptcy last year and completed a financial rehabilitation program run by a counseling center.

Of the respondents, 84 percent said they borrowed money from another financial institution after they had difficulty in paying off a debt stemming from bank loans, credit card expenses and other forms of financial activities.

Borrowing additional cash was only made possible through higher interest rates, making it tougher for the respondents to pay off increasing principal plus interest in a timely manner.

“The debts eventually reached the level that they no longer could control, leading to the decision to file for bankruptcy,” the counseling center explained.

Asked about how they first incurred the debt, 69.9 percent cited daily living expenses. Housing expenses accounted for another 28.9 percent, while impulsive, excessive shopping stood at 27.3 percent.

The respondents were free to pick multiple answers to the question.

“Young people have a higher possibility of being indebted, as they don’t have stable incomes or have as many assets saved compared to older peers," the center said. “In that regard, we urge those who struggle with debts to come forward and reach us because we can help them rehabilitate and restart their life.”