Step-By-Step Guide to Clearing and Managing Debt

If you are struggling to clear your debt, this guide offers a strategy to manage and organise your debt to become debt-free.

ValueChampion Editorial Team

by ValueChampion Editorial Team on May 29, 2024

personal loan debt

According to data from the Department of Statistics (SingStat) on 26 Feb 2024, the average household debt grew at the fastest pace since the second quarter of 2022, rising 0.8% from the third to fourth quarter of 2023 to S$364.2 billion.

Paying off debt isn’t easy. Many of us have struggled only to pay the minimum amount each month or found ourselves swamped in multiple sources of debt. Singaporeans have more access to different lines of financing than ever before.

But remember, not all debt is the same. Before plugging any holes in your finances with your hard-earned cash, take a moment to figure out which debt is hurting you the most and build a strategy to tackle your debt more efficiently.

Here’s how to get started.

1. Build an Emergency Savings Fund

woman holding savings jar
Source: Unsplash

Before you begin implementing any strategy, you will want to save a secure emergency fund while making minimum payments towards your debts. Although it may seem counterintuitive to not pay off your debts immediately, an emergency fund is your financial insurance package. In the event of an emergency, you now have a cushion to pay off those expenses without running yourself further into debt.

Once you’ve managed to build a small emergency fund, you can begin implementing your strategy to clear the debt.

2. Organise Your Debt

There are two competing strategies to clear multiple outstanding balances: the debt avalanche and debt snowball methods.

Both methods are techniques you can apply to your personal finances to tackle a range of different types of debt. What they both have in common is sitting down and listing out all of your debts—then prioritising the one that hurts the most (i.e. the one with the highest interest, or one with greater penalties). The idea is you make minimum payments on all loans except one. You then apply as much extra money toward making large payments to erase the debt.

Although the methods differ in which debt you single out to pay, both ways are reasonable approaches to tackling multiple debts. Before deciding, research the pros and cons of both methods and choose which one is best for you. You can also look at debt consolidation plans and balance transfer options to transfer high-interest debt into low-interest accounts to tackle your outstanding debt aggressively.

Compare Debt Consolidation Plans in SingaporeFind Out More

Compare Balance Transfer Loans in SingaporeFind Out More

3. As Much As Possible, Tackle High-Interest Loans First

mortgage loan
Soure: Pexels

Surrounded by consumer debt with high-interest rates can feel like you are drowning. One of the largest sources of consumer debt is your home loan. Thankfully, this type of debt is what we call a secured loan backed by an asset (the home) and comes with lower interest rates. While on the other hand, unsecured loans, like credit card loans and personal loans, tend to go with much higher interest rates.

The bottom line is that the higher interest rates you have, the higher the total cost of the loan becomes. Lending toward the debt avalanche method, after you’ve taken the time to organise your debt, the advantage of tackling your highest interest rates first can save you money in the long run. The challenge is that it isn’t easy to stay the course. Paying large sums of your principal balance to clear your high-interest debt will require some discipline. However, you can directly measure the debt avalanche method in dollars saved.

4. Prioritise Government Debt

Most Singaporeans pay their taxes on time, but if you find yourself struggling one year, you will want to prioritise this debt as soon as possible. Penalties can be immediately applied and the government will eventually take enforcement actions to recover taxes. In some instances, you will be unable to access your bank accounts until they receive full payment. Worse yet, the government can even take legal action against you.

So when organising your debt, one of the first things to resolve is debt owed to the Singapore government. You shouldn’t be too worried, you can apply for up to 12 interest-free monthly instalments via GIRO to manage payments, but the worst thing you can do is neglect it entirely.


Looking for a personal loan? Check out our roundup of the best personal loans in the market today.

Compare Best Personal Loans in SingaporeFind Out More

Or manage your debt better with a debt consolidation plan.

Compare Debt Consolidation Plans in SingaporeFind Out More

Cover Image: Unsplash

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