If you have too many debts yet too little time, it’s natural to worry. Being in debt and juggling multiple outstanding loans, like overdrafts, mortgages, credit card debts, personal loans and car payments, can be stressful. Is it possible to drown in debt?
Fortunately, your cause of financial death need not be debt. The right financial strategy can help you manage your payments. While paying off your debts is a long-term goal, you can start planning your debt management journey right now.
Consider the following tips that will help you clear outstanding debt
Debt Consolidation and Refinancing
Debt consolidation plans in Singapore roll all of your loans into a single payment with lower interests.
This debt management plan is ideal if you have many debts that require repayment over a few years. It acts like a personal loan, except you must use debt consolidation to pay off credit card debts and other personal debts (such as a line of credit). Since banks know what you are using the loan for, debt consolidation is more affordable compared to traditional personal loans.
There are two ways to consolidate your debts: a debt consolidation loan and credit card balance transfers.
Low-interest debt consolidation loans consolidate multiple high-interest loans into one payment. This can lower your accumulated interest rates and monthly instalments.
If you are dealing with credit cards, consider a balance transfer. This option transfers your existing credit card balance to another card or bank with a lower interest rate.
But what if you have a home mortgage? Consider refinancing. This payment option can lower your interest rates.
Personal Loans and Lines of Credit
An unsecured personal loan can also help you consolidate credit card and other types of debt. You benefit from low-interest rates, as well as a fixed repayment period (usually 12 to 84 months) to pay off your debts. The downside to personal loans, however, is that loan applicants must have an excellent credit score and higher income before they can enjoy lower interest rates.
Another option is a line of credit, which is an overdraft facility that charges interest only when you withdraw from your account. Compared to your credit card, line of credit loans have lower interest rates and provide flexible repayment periods. The only con to using line of credits is that it has a higher interest rate compared to personal loans.
Determine the Debts You Should Pay Off First
Instead of trying to pay everything all at once, pause and organize your debts. Identify high-priority payments and focus on these first. If you’re unsure which of your debts you should pay off first, here are two strategies you can use:
- Pay off the loan with the lowest balance. This brings you one step closer to clearing the total debt, one loan at a time while maintaining your minimum payment amount on the other loans.
- Focus on the loan with the highest interest rate. Doing so will lower the interest on your outstanding dues. This also gives you more opportunities to pay for the minimum amount on other loans.
But which option is the best option? To determine the solution that works for you, assess your lifestyle. Also, choose the solution that motivates you to continue your debt management journey.
Plan Out Your Budget
Another way to clear outstanding debt is to plan out your budget. To restore your financial status back to health, plan how much you are going to spend each week and month. The first rule in financial health is to know what you need and what you want and comparing both of these to how much you can afford.
An important principle in budgeting is that your expenditure should never exceed your income. Continuous borrowing to finance your consumption is never the way to go. When you borrow money to spend today, you lessen the money you can use in the future.
Therefore, it’s worth your while to plan how much you are going to save. Set money aside to repay your loans monthly. Doing so simplifies the tracking of your expenses on a daily or weekly basis, as well as ensures that you are on target to save and spend.
Address the Root Cause of Your Debt
Make paying off your debts worth the while by determining why you ended up in debt in the first place.
Identify the primary cause of your debt. Is it excessive spending on wants? Or an unhealthy habit of taking out too many loans with too few financial resources? No matter what the reason is, address them as soon as possible.
Clearing your debt can take a while, but it’s better to start late than never. The most important thing to remember is that you have to stay on track and consistently practice good financial habits.