Even though most of us have been staying home during this period and saved money from gatherings and entertainment expenses, we continue to have to pay for our bills and loans. Hence, many are pushed into the debt trap circumstances.
In the market, there are too many financial institutions offering credit cards and personal loans, making it easy to rack up a significant amount of debt if we do not watch our spending. Adding mortgage and car loan to these debt accumulated, it is indeed stressful for many.
Not to worry, if you are caught in this situation, don’t panic. We have a few ways you can do to get your finances and sanity back on track. Take these steps to rein in the debt.
Know how much you owe
You need to know the size of the problem before you can tackle it. Start by making a list of all your outstanding loans. Needless to say, once you know the amount you are owing, don’t add to it.
Clean up your wallet
Credit card benefits can be very tempting. Take on credit cards only if you are able to make the full payment on time. Otherwise, limit yourself to just one to two cards. You will not have pressure to meet the minimum spending and payment due date.
Pay off your highest interest loans first
To reduce your monthly repayments faster, aim to clear debt with the highest interest rate first. Do not forget to make the minimum payments on the rest of your loans, as late payment fees are very high. The rest of your surplus funds should be used to pay off the most expensive loans. If you are able to take a personal loan, which has effective rates of around 6 to 10 per cent per annum, it is reasonable to use that to pay off those expensive credit card debts with rates of over 20 per cent.
Personal loans also have longer repayment periods of up to five years, which means your monthly instalments will be more manageable. However, do take note of early repayment fees that apply if you wish to repay a loan in full before its due date.
Using balance transfer services
One way to reduce interest payments is to take advantage of balance transfer services offered by some banks. It enables you to transfer amounts you owe to several credit card companies, to just one financial institution at a lower effective interest rate. Not only does this method reduces your monthly interest, it is also easier to keep track of your repayments so that you don’t miss an instalment. Do note that balance transfer usually offer borrowers an interest-free period that ranges from 3 to 12 months, after which a high interest rate will apply. The trick is to clear any outstanding debt within this interest-free period to fully reap the benefits of this service.
Apply for debt consolidation
If you have a significant amount of debt to clear off, you might want to consider the Debt Consolidation plan (DCP), which was developed by the Association of Banks in Singapore. This service allows you to consolidate all your unsecured debt, such as credit cards and personal loans, owing to different banks with just one of 14 participating banks at a lower interest rate. This new consolidated loan will come with a schedule of fixed monthly instalments that is payable until all outstanding balances are repaid. To be eligible, you need to have unsecured debts that is more than 12 times your monthly income. However, the DCP comes with some conditions. Once you have signed up for the plan, all your existing unsecured facilities (including credit cards) will be closed. You will also not be able to obtain new credit facilities, unless they are for education, medical or business purposes. Find out more about the DCP here.
If you are still unsure and need help with your debts, you can approach Credit Counselling Singapore, where they are able to advice you and assist you in getting out of the debt trap. Find out more here.
Just a simple change in lifestyle can help you tremendously, never get caught up in the debt trap again. It is time to break away from the vicious cycle. All the best!