Personal debt is a growing problem for Singapore's consumers. According to ValueChampion's study, unpaid credit card debt and personal loans represent 46% of S$55,000 household debt per capita of an average person in Singapore. Sure, having loans for your home or your car is a reasonable cost of living that you can't avoid, but if you have S$20,000 to S$30,000 of credit card debt or personal loan, you really need to be looking for ways to become debt-free quickly. These loans can easily cost you 15-25% in interest every year, which can add up to thousands of dollars.
But what are the best ways to actually repay these high cost loans quickly? Our team at ValueChampion has investigated the best financing options to help guide you back to financial health and happiness.
If You Have A Small Amount Of Debt that You Can Repay In 12 Months: Balance Transfer Loans
If you have a growing balance of unpaid credit card bills, you might want to consider getting a balance transfer loan from bank. Basically, you can transfer your credit card balance to a different bank, and get a "grace period" of 3 to 12 months to fully pay down your credit card debt. During this grace period, you don't get charged any interest. Since your card normally charges 25% interest on your balance, using a balance transfer makes repaying your balance much easier than if you kept your balance on your card.
However, you should only use this product if you are confident that you can fully pay down your card bill within 3 to 12 months. Once your grace period expires, you will continue to be charged the high 25% interest, rendering the value of balance transfer to be useless. If you have much more than what you are able to repay in 12 months, you might want to consider a different option below.
If You Have A Lot of Debt That You Need To Repay Over A Few Years: Debt Consolidation Loans
Until last year, the best way to consolidate your various loans into an easily manageable debt package was getting a personal loan. These loans offer a fixed flat interest rate on relatively small loans (i.e. a few thousand dollars to hundred thousand dollars) with fixed monthly payment schedule. The best part of these loans is that you can use the funding for basically anything, unlike home loans or car loans that need to be used for specific purpose. Therefore, you could get a personal loan to pay off your credit card debt or money lenders, and slowly return to financial health over time.
Starting 2017, however, banks have introduced an even better way of paying off your expensive loans with a cheaper one. It's called a "debt consolidation loan." Effectively, it works exactly like a personal loan, except that it must be used to pay off your credit card debt and other personal debt (i.e. line of credit, etc.). Because banks know what you are using the loan for, however, these loans are slightly cheaper than a traditional personal loan.
Debt consolidation loans are ideal for people who have so much personal debt that they need to repay it over a few years. For instance, HSBC's personal loan can cost you only 4.7% of fixed interest rate for a 7 year loan. Of course, it's generally a good idea to repay your loan as quickly as possible to avoid paying too much in interest, but spreading out your repayment schedule overtime can help ease the short-term pain of overstraining your monthly budget.
Plan Out Your Weekly and Monthly Budget In Advance
When you are trying to get rid of your expensive borrowings and return to financial health, it's imperative that you plan out in advance exactly how much you are going to spend and save each week and month. The first step of financial health is knowing what you need and what you want, and comparing it to how much we can afford. The important principle to uphold here is that your expenditures should not exceed your income. You cannot continue to borrow money to finance your consumption; if you continue doing this without earning more money or repaying your debt, it can ruin your life, possibly forever. Borrowing money to spend today means less money for you to use in the future. Unless you are extremely certain that your income will grow dramatically in the near term, you should be spending less than what you make.
Therefore, it's definitely worthwhile for you to plan how much you are going to save and set aside to use for repaying your loans each month. Then, it becomes easier to track your spending on a daily or weekly basis to make sure you are on target to spend and save according to your plan. Your income generally won't change too much too often, so making an effort to control your expenditures is one of the smartest ways of returning to financial happiness.