How To Become Debt-Free in Singapore

If you’re looking to reduce or pay off your debt, here’s how you can tackle it to get closer to financial freedom.

ValueChampion Editorial Team

by ValueChampion Editorial Team on Mar 25, 2024

pay debt written on notepad

Getting out of debt is tricky under normal circumstances, but even more so when volatile markets exacerbate problems like unemployment, delayed payments, and other barriers to earning and saving money. However, it’s never too late to start saving and earning money. If you’re looking to reduce the amount of debt you have and prevent yourself from getting into more debt, here’s how you can tackle different types of debt effectively to help you get that one step closer to financial freedom.

If Your Debt Is Spread Across Many Loans, Get a Debt Consolidation Plan

If you’ve racked up a fair amount of debt in the form of several loans (i.e., personal loans, renovation loans, car loans, etc.), you may want to consider a debt consolidation plan. Basically, these plans consolidate your debt into one large loan, streamlining your monthly payments into one payment. They typically last for a period of time (e.g. 10 years) with a fixed interest rate of 3.12%–12% per annum, making it ideal for those who want lower, long-term payments. For instance, if you take out a loan of S$10,000 for 10 years at 3.80% interest, you can expect your total repayment to be S$12,081.10. This could be a much better option than selling assets (i.e. pawning your valuables) for cash or foreclosing on your home.

Debt consolidation is for unsecured credit, and it often excluded specialised loans like renovation loans or education loans. One of the major advantages of taking a debt consolidation loan is that you do not have to choose a loan based on your existing lenders. This option is great for those with existing borrowers, but make sure you research before choosing a provider as some will cost more than others in the long run.

If You Have A Lot of Credit Card Debt, Consider a Balance Transfer Loan

Inflation, rising cost of living, layoffs and uncertainty in the job market might have left your wallet particularly vulnerable. If you racked up a credit card bill that you can’t pay off before the due date, you may be subject to spiked up interest rates of an average 25% per payment. To avoid carrying debt well into the new year, you could use a balance transfer loan to consolidate and refinance your debt.

debt consolidation plan vs balance transfer

Typically lasting 3, 6, 12, or 18 months, balance transfers will move your debt to one account and charge you initial interest rates of 0%. After a few months, the loans could hike up to a prevailing interest rate similar to those of regular credit cards (around 28%), so it’s best to pay it off early. If your debt is therefore localised to your credit card and you anticipate being able to make monthly payments, this could be a great solution to help you become debt free in the coming year.

Related: Why You Should Avoid the Monthly Minimum Credit Card Payment Trap

If You Have Minor Debt, Consider Cutting Costs

It goes without saying that the easiest way to reduce your debt is to cut out frivolous spending. If you owe less than a few thousand dollars, making changes in your day-to-day life could seriously help reduce your debt. For example, in Singapore there was a 36% increase in ordering food (both from restaurants and grocery stores) since the pandemic began. While it’s understandable that you may need nights off from cooking, dining out more than once a week or at expensive places could significantly increase your expenses.

Moreover, if you’re paying for monthly subscriptions like Spotify (S$10.98) or a gym membership, you could cut costs by listening to YouTube music or using their free exercise videos. To manage your finances, we’ve explained the 50-30-20 rule, where 50% of your money should be spent on essentials, 30% on discretionary spending, and 20% put away for savings.

To Prevent Debt, Look for Ways To Increase Your Savings

piggy bank savings grow wealth
Source: Pexels

If anything, the past few years since the pandemic have taught us the importance of building a rainy day fund, and now would be a great time to start fresh with your financial planning. Perhaps you’ve had debt previously and are worried about accumulating it again. Or, maybe you are worried about falling into debt if you’ve lost your job and have bills to pay. Aside from cutting your costs, you can increase your savings by other means.

While financial problems can be stressful, there are ways to focus on your savings to prevent or lessen potential debt. For example, a high-yield savings account or fixed deposit account are accounts that will grow your savings over time with interest. Additionally, if you have some extra time on your hand, you may want to pursue a side gig, do part-time work either on- or off-line. You can also find passive income sources to supplement your income without having to break a sweat. While the past few years may not have been an easy time for many people, with proper planning you can work towards making this year as debt-free and stress-free as possible.

Compare The Best Credit Cards in SingaporeFind Out More

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Cost Of Living Got You Down? Here Are 5 Ways To Cut Costs

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