Smart Ways to Clear Your Debt Fast and Become Debt-Free in Singapore

This is a guest contribution by Credit Bureau Singapore, as part of a partnership between CBS and AMTD PolicyPal Group (PolicyPal and ValueChampion), in line with our mission to empower people with financial knowledge and help them attain financial wellness.

The most common form of debt individuals take on is loans with banks and financial institutions. These types of loans can range from essential loans like home loans and education loans to high-interest liabilities such as credit card debt. 

While tackling your debt can feel like an insurmountable task, these loans have to be paid back within the pre-agreed repayment period, or else they could turn into bad debt. 

Here’s why it’s important to pay off your debt quickly:

1. Interest savings – prompt repayment of your debt reduces the amount paid in interest over time, saving you money in the long run.
2. Improving your credit score – reducing your debt can give you more time to build your credit profile and make it easier for you to obtain essential loans in the future.
3. Financial freedom – clearing your debt provides greater flexibility in managing your finances, building wealth and ultimately achieving your personal finance goals.

Related: How to Plan Your Finances for Short, Medium and Long Term Goals

It is always best to avoid getting into debt in the first place. But if you have already taken on debt, these are five things you should keep in mind to better manage your debt and pay it off as soon as possible.

1. Prioritise high-interest debts

Loans with high interest rates such as credit card debt and personal loans can build up very quickly, especially if you have only been making minimum monthly payments, or worse, missing payments. 

If you do not make your payments on time, you might find yourself in a situation where your principal loan amount never gets paid down because all your monthly payments go towards the high-interest charges. Some banks in Singapore have revised their credit card interest rates upwards in the last couple of years, which would only worsen this problem.

If you are currently juggling a few different types of loans, it would be in your best interest to funnel as much money as possible towards the high-interest loans first. Only by paying off your highest-interest loans can you stop the snowballing debt, ultimately saving money in the long run.  

Related: How to Choose the Right Loan for Specific Needs

2. Negotiate with your creditor

Several banks and financial institutions can be lenient when it comes to waiving off interest and late charges. 

However, if you have already reached the maximum capacity limit of how much the bank can waive, try to explain your current situation and politely request if the bank has a more affordable instalment repayment plan for your situation. 

There are a few ways you can negotiate with your creditor. Firstly, stop all new charges on your credit facility and put up an appeal request to exceptionally waive the previous months’ late and interest charges, if possible. 

Alternatively, check if you have been making late payments due to a misalignment between your salary crediting date and your payment due dates. If so, you can request to adjust your statement date so it does not lapse, given your current salary crediting date. 

Related: Step-By-Step Guide to Clearing and Managing Debt

3. Speak to an experienced person

If you are experiencing overwhelming debt and you do not have the means to pay them back, do not suffer in silence. Seek counsel from family and friends who have experience working in the credit or banking industry and might be able to provide you with insightful advice. 

Alternatively, Credit Counselling Singapore (CCS) offers the Debt Management Programme for heavily indebted individuals. CCS is a non-profit organisation that acts as a third-party counsellor between you and the bank. The Debt Management Programme is designed to help you better manage your loans. CCS also provides support, guidance, talks and workshops on improving financial knowledge and maintaining mental and emotional well-being. 

Related: Why Is a Healthy Credit Score Important in Singapore and What Are the Benefits?

4. Seek external help

If you are already struggling with multiple loans and your total unsecured outstanding balances have exceeded 12 times your monthly salary, you can apply for a debt consolidation plan. 

This plan is offered by most banks and involves combining all your existing debts into one single repayment plan. By doing so, it reduces the risk of incurring multiple late and interest fees with different loan accounts. 

Debt consolidation plans streamline your debt repayment process as you would only have to service this one plan every month instead of multiple loans, preventing you from missing out on loan repayment due dates and incurring unwanted additional penalties. 

The best part about debt consolidation plans is that the interest charged is much lower than credit card interest rates, which thus saves you money just in interest charges alone. 

Related: What’s a Debt Consolidation Plan and Who Needs It?

5. Avoid taking on additional loans and cut unnecessary expenses

A common mistake made by desperate debtors is applying for additional cash advances or overdrafts to repay their loans. 

Doing this might help to temporarily relieve your monthly debt repayment burden, but over time it will burden you with ever-growing debt repayment obligations. In addition, most cash advances and overdrafts come with an administrative fee and interest charges. 

Conclusion

Quickly paying off your debt requires a combination of strategic planning, disciplined budgeting, and lifestyle adjustments. It is best to exercise prudence and not spend money on unnecessary items, and instead use that money to pay off your debt before it completely snowballs out of control. 

By implementing some of the strategies above, you can accelerate your debt repayment process and achieve financial independence sooner.

When repaying your debt, it could be helpful to get a copy of your credit report so that you have a bird’s eye view of your credit history.

To check your credit score, you can purchase a copy of your credit report at https://www.creditbureau.com.sg/. 

Last but not least, be sure to follow and like Credit Bureau Singapore’s Facebook page for more useful content and tips to build a good credit reputation!

Read More:

• 3 Pitfalls of Choosing the Wrong Credit Card
• 6 Hidden Credit Card Fees in Singapore You Should Be Aware Of
• What Are the Risks of Credit Card Churning?
• Everything You Need to Know About Credit Card Cash Advance
• Thinking Of To Pay Off Your Loans Early? Follow These Tips

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