It is not uncommon to take loans in Singapore. It has become a way of life. Despite the fact that it was despised a while back, loans are something that is essential to living well in Singapore. Very few people can afford to live life on their income alone. As such, loans are not a strange thing and neither is debt.
Facts have come out, showing the trend of debt that Singaporeans have fallen into. The Monetary Authority of Singapore has been advising Singaporeans in debt to pay off their debts. The Repayment Assistance Scheme was created because the government knew how bad the debts were. It wanted to help those whose annual income is less than S$120,000 pay off their debts.
Because these debts can affect the Gross Domestic Product of the nation, the Monetary Authority of Singapore has enacted very strict rules on getting loans. This doesn’t seem to stop people, though. Singaporeans still get into debt way over their heads. The major reason why you fall into debt is that you overspend.
So, how do you know that you are in spiralling debt?
- You can’t seem to get an approval for your loan application
It is very normal for banks to reject loan applications for a myriad of reasons. But when a moneylender also rejects your loan application, then you are in trouble. But how do they know that you are in spiralling debt? Before you can get a personal loan from a lender, they assess your risk. They do some research to find out just how risky it would be to grant your loan request. It is not difficult for them to access your credit report, you know. Another reason could be that you have borrowed from them before, and they had repayment issues with you.
- You have a highly-unbalanced debt-to-wage ratio
Calculating your debt-to-wage ratio isn’t at all hard. Get the total of all your loan/bill payments for a month. Then get the total of your income, per month. If what you earn is lower than your repayments, you have a bad debt-to-wage ratio. You should probably get some financial counselling.
- You find it difficult to the minimum on loan repayments
If for some reason your income isn’t enough to sustain you and pay off your debts, you are in spiralling debt. If you can’t even pay the minimum on those repayments, your spiral is worse than you know.
- Other issues make it even harder for you to repay your loans
Not only do you have bad credit, but other things have come up. You got seriously injured and have no money for medical bills. Your house is acting up and needs a ton of repairs. You suddenly got fired from your job. Your car broke down. These issues can make you fall into more debt than you already are in.
This looks very dire indeed. How can you get out of spiralling debt? Is it even possible for you not to be broke? Yes. It is.
4 Methods To Help You To Stay Out Of The Debt And Broke Zone
- Assess your debts, and pay them off from worst to least worst
There are good debts and bad debts. The good ones are loans that you take for your house. The bad ones include a personal loan you got from a moneylender to settle your gambling debt. A bad debt could also be a maxed-out credit card. As you make plans for repaying your loans, assess your debts. Group them into Good and Bad. And then start paying off the bad ones. Once you have successfully settled those ones, repay the good debts. Your credit report will show that you made late repayments, but at least you will be debt-free.
- Assess your bad debts, and pay off those with the most charged interest
Typically, the bad debts have the highest interest. A personal loan is one of the most expensive in Singapore. Not every moneylender charges quite the same interest, but it would still be high, about 18%. Credit card debts charge a whopping 24% interest. These are the ones you should pay off as quickly as possible. Late repayments on these debts will make it even harder for you to repay them in the future.
Here is an example. You made a large money transaction on your credit card. Maybe a transaction of S$4000. The company is charging you interest based on that amount. Then you are able to pay it off till you are left with S$4 to pay. The company will still charge you the interest on the original transaction figure. See how necessary it is to prioritize debts with high interest?
- Make a repayment plan
To make a repayment plan, you need to first make a good budget. Your problems probably began because you never budgeted your earnings well. Create a budget for your income, including expenditure, savings, and emergency fund. This budget will include money for debt repayments. It shouldn’t be strange to you that you will need to restrict your expenditures to the barest minimum. You need to get out of debt.
Then make a repayment plan. Write down all the loans you have taken. Note their interest rates besides them. The debts should be arranged from worst to better. This way, you have a repayment schedule, and you should stick to it.
- Take yourself to a financial support group
These support groups teach you a lot of important things. They teach you how to borrow responsibly. They help you with ways to settle loan sharks (if you got money from them). They don’t exactly provide you with cash, but they help you psychologically. From what you learn in the support group, you can plan your affairs better.
If you got a personal loan from a moneylender, don’t run away. Meet the moneylender and explain your situation. Most of them are willing to create or restructure your repayment plan to suit your repayment ability.