It is a fact that 9 out of 10 people in Singapore clears their credit card debt on time. Though this is a fact, a lot of them struggle with handling this, the main reason is not being able to use it in an optimized way. Is it also a case with you that you are finding it difficult to clear off the debt? The whole issue lies with the debt is the interest.
Compound interest functions in a way that the longer you take to pay your debts, the more you will end up paying. Leaving unpaid balance in your credit card which is not good.
Various reasons can be associated as to why people find it difficult to repay their debts, it might be losing a job or due to unnecessarily spending of money. If you are looking to deal with this problem, here are 7 easy ways that can help you clear your credit card debt Singapore in an optimized way.
1. Make Regular Repayments and Pay More Than the Minimum
You must calculate the amount that you need to pay every month to clear off your credit card debt in Singapore. Creating a budget for a monthly expense will help you find how you can afford the repayments and how much you need to save.
If you are just planning to pay the minimum credit card debt you are ultimately adding interest on the remaining balance. Hence, it is required that you do not pay the only minimum cutoff but also repay whatever debt is leftover.
You can start by setting up a debit system that would automatically make the required balance transfers from your debit card to a credit account making sure that you are on the right track.
For example, if you have a credit card debt of $6000 then you need to divide it by 12 and make sure that you pay $500 to avoid an increase in that amount. Set the same numbers on your debit account to be deducted at the starting of every month so that you can plan your monthly expenses from the remaining money only.
2. Repay the Debt With the Highest Interest Rate First
Go through your statement balance and look for the high-interest rate first. You need to start paying this credit card debt before other amounts. No matter how small or big the numbers are. It will help you lower interest which can be harmful to you in the long term.
Once you have cleared this debt, find the next high-interest rate amount and start this cycle once again. Remember, you are working on reducing your interests to ultimately pay lower interest to be debt-free. There are various online tools available that can help you calculate these amounts.
For example, if you have a credit debt at a 20% interest rate and another one at 25%, start working on 25% first to avoid paying the extra percent of debt which is unnecessary.
3. Consider Zero Interest or Balance Transfer Credit Cards
There is zero Interest credit card available with banks that would let you transfer your existing debt to a new credit card while having no interest rate implemented for an initial duration. Having one account instead of multiple will also make sure that you save on their annual processing fee. Remember, that you will have to repay this loan in a short span because of two reasons, one the 0% interest rates will be beneficial to you and secondly, once this duration is over, the interest rate will again get started adding with a high-interest rate.
To repay this balance promptly within a 0% interest rate, you can do a simple calculation. For example, if your bank gives you an introductory offer for a year, then divide your statement balance with 12 and make sure that you pay them monthly without fail. If you fail to do so you will have more interest to pay for the next month.
For example, if you have a credit debt of $6,000 and you opted for a 0% balance transfer offer for a year, you would have to pay $500 every month to make sure you clear your debt before the interest rates start getting added to your credit card again.
Please note that the balance transfers entail an admin fee that has to be paid in advance. If your transfer is approved, try to get the tenor as long as possible. Longer interest-free period will ensure that your overall interest will be lower.
4. Consolidate Your Debt With a Personal Loan
Taking a personal loan at lower interest could also help you consolidate the debt. It can help you with more savings as compared to credit cards. Compared to the zero interest debit card, a bank will provide a personal loan for a longer duration than that of the balance transfer.
The banks’ interest rate for personal loans is around 4% per annum, while on a credit card debt is much higher which is more than 20% per annum. Also, it is a fact that personal loan is timed for 1 year to 5 years, this means that you have more time to repay your debt while giving lesser interest.
One needs to also take into consideration that various other costs are associated with this personal loan like processing fees, application fees, yearly fees, or any other payment. Also, remember to stop spending any further amount via your debt account once you make transfers of the amount. Further saving is necessary.
If you are also interested in getting either a secured or unsecured personal loan from a moneylender to consolidate your debt, note that the interest rate per month is capped up to 4% only. The repayment period is up to 12 months, subject to the terms and conditions of the agreement.
5. Look Into Debt Consolidation Plans
All the leading banks in Singapore have a government-approved scheme available, known as a debt consolidation plan (DCP). Under this scheme, a financial institute or a bank will make payment for all your outstanding credit card debt, if you agree to make the payment in fixed installments.
You need to have heavy outstanding debt to be eligible for this. All your outstanding credit card amount should be at least more than 12 times your monthly income. All major banks offer DCP so you can maximize your chance by approaching them directly. Once approved, all your existing credit cards and accounts will have to be closed except one that would be within 1 time limit of your monthly salary to maintain your cash flow. The focus will now be only to pay the monthly installment on your DCP. You can simply start by finding their email address and writing to them.
You need to also know that once you have registered for this, all your other credit accounts will be non-operational. You will not be allowed to apply for any new credit card unless loans are for a specific purpose like medical, business, or education.
Staying out of debt doesn’t mean just clearing off your existing debts but also involves changing your spending habits. It won’t make sense if you would clear your existing debt and have a pile of them again at a later stage. If you can’t follow this then applying for DCP will only increase your financial problem.
6. Scale Back Your Lifestyle Drastically
This is a harsh truth but you will have to scale back your lifestyle drastically to make sure that you pay off your credit card debt on time. Of course, It would depend on your circumstances.
You can’t cut off the necessary expenses but as a general rule, you should do as much as possible without having your family feel pressurized under the debt. This means avoid traveling, shopping and eating out as much as possible. Avoiding small expenditures can certainly lead to saving that would help you recover the debt.
7. Negotiate With the Bank
There is always an option to discuss your financial situation with the bank to negotiate a repayment plan. By having a conversation with your back, it could be possible that they give you a more flexible plan. You could be benefited by a short payment hiatus or interest rates reduction as well. Make sure you do not get yourself marked as bankrupted or in debts in Singapore at any point, it will impact your credit file in the future.
When you are not able to repay a loan, even the bank will not get to earn the interest which practically you are not giving them any money. So, though they want you to pay the interest they would also want you to be able to do it. They will speak to you about your plan and would make negotiations accordingly.
Also, remember that more the number of credit cards you have more will be the number of bills to pay. You will also have to take care of the balance sheet of another account. So, try reducing them to 2 so that you get the maximum gain as it will give you a good cashback rate and earn more miles rate.
There is always an option where you can get help from, like that from a credit card counselor. Credit counseling Singapore (CCS Singapore) is not expensive and you can get a lot of help with managing your credit debt. They make sure that your personal information is not shared with anyone else. They provide you with expert advice and get you connected to the resources that would help you in becoming debt-free.
There are a lot of companies that can help you take loans and counsel you with the best available options. With such companies, taking a loan becomes a lot simpler and they also inform you on how to apply for urgent loans.
To become debt-free will take some months to some years. It may not be possible to get rid of it at once but following these simple steps will help you get free while having less stress and buying more time. So once you have worked out on these steps, live your life to the best, making sure that you celebrate the success of your progress.