A Helpful Guide to Clearing Your Debt in Singapore

Incurring debt is more common than most of us would think. Especially in a country like Singapore where it is virtually impossible to buy a house or car without taking out a loan, many of us will be swamped with debts by the time we are 30. What’s more, loans are taken for various other personal reasons and business ventures or investments as well. It might feel extremely stressful during the initial few months when we struggle to pay our monthly installments, but we might gradually get the hang of it by learning a few tips and tricks along the way. If you are obtaining a loan for the first time or find it difficult to keep track of and manage your financial debts, read on to find out how you can reduce your debt in smart and efficient ways. 

1. Cash Flow Shortages

This may occur if you are too caught up with paying your monthly installments but maintain your daily expenditures. Thankfully, it is not a huge problem as all you need to do is to create a budget sheet that reflects your income and expenses for each month. This will help you prioritize your expenses better and help you decide what expenses you can reduce. For example, for groceries and household items, opting for cheaper brands will save you a dollar here and there. Another way is to take note of all your earnings and expenses. On a daily basis, write down all these details in a notebook or on your phone for better and quicker reference. This is such that you can highlight the times when you accidentally overspend on items that you don’t need. The key is to save as much as you can and forgo luxuries like eating in restaurants and holidaying; at least until you get a better hold of your financial situation.

2. Track Your Debt Ratio

When it comes to deciding how much loan you should take, consider your current income and expenditure habits. Generally, it is safe to follow the 35% debt-to-income ratio where the amount of money that will go towards settling your monthly installments should not exceed 35% of your monthly income. Besides that, Ensure that you do not have too many debts as they will make it difficult for you to keep track of repayments. Sometimes, you may be able to afford a higher loan than you need. In those circumstances, try to only borrow what you need so that you will incur less debt than necessary.

3. Keep Up with Repayments

This is extremely important as any late payments will be immediately reflected on your credit report; this is detrimental as it will make it harder for you to procure loans in the future and you never know when you’ll need to procure new loans. Set up reminders for yourself to pay your installments on time and always ensure that you have enough money set aside. In the unfortunate event that you are unable to pay on time, try contacting your lender to discuss how you might be able to avoid having the late payment detail stated in your credit report.

4. Make Larger Repayments Where You Can

Your number one priority when you have a loan is to pay it off as soon as possible; or at least save up enough money in your bank account to last you to the end of your loan period. In the case where you suddenly receive a huge amount of money; be it from a bonus at work, we’d recommend using a huge portion of it to pay off your loans. Sometimes, it is not worth it to finish paying your debt earlier as you might receive a penalty fee. Research on which loans are best repaid faster; usually, it’s those that incur high-interest rates so look out for them. You can also discuss with your lender about shortening your loan period if you are confident of paying your debt back quicker.

5. Consider the Interest Charge

Always read the fine print before signing a loan document. Interest rates and additional fees and charges are usually hidden in the document and the best way to know which loans to prioritize is by looking at the interest charge. Smaller balances equate to lesser interest so reduce your credit card spending or pay off your loans in larger amounts to avoid the high interest rates. Moreover, if you have plenty of debts, definitely think about a debt consolidation plan. Not only will the interest rates decrease, but you will be able to pay off your installments easily without worrying about forgetting some loans.

6. Making a Priority Worksheet

It is difficult to pay off all your debts at once and what most people do is list out their loans and decide on which is of a higher priority. For instance, home and car loans are usually on the top of the list as they fall under personal assets. After that comes debts which incur the highest interest rates like credit card balances. By prioritizing your debts, you will gain better control of your finances and can better plan for future expenditures.

What If You Cannot Pay?

Keeping up with your loan payments reflect well on your credit report score. However, if you are really unable to meet the deadlines for certain repayments, it is crucial that you sit down with your lender and discuss other repayment options. One late payment is all financial institutions need to find you an untrustworthy borrower so always try your best to pay your loans on time.

Loans can be tricky to manage but as long as you are committed to drafting schedules and taking careful notes of your expenses and income, you’re pretty much good to go with your repayments. Your credit report is of utmost priority and it is important that you review it regularly to check that everything stated there is true. This is so that you can be assured that you have a good credit score for when you need to procure a future loan. 

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