Awesome Tips for effectively paying off your debts

Awesome Tips for effectively paying off your debts

Outstanding debts can cause serious dents even with the best pension plans that have been carefully made in recent years. Entering into debt is seemingly inevitable in modern times, due to both higher costs of living and consumerism.

With each passing year, more and more Singaporeans are diving into the debt pool as they struggle to cover their daily expenses and make ends meet. From December 2016, the average Singaporean household has an estimated $ 55,000 in debt, an increase of 3% compared to 2015. 75% of these household debts stem from unpaid mortgage loans. Some of these unpaid debts can even force retirees to spend their assets to cover their debts instead of passing it on to their beneficiaries.

However, there are several ways to effectively settle outstanding debts to ensure that it does not put any pressure on one of those best retirement plans that you have come up with.

1. Prepare and keep a budget

Creating a good budget is a great way to analyze and plan finances. By allocating a fixed amount to a specific expenditure per month, the amount of the expenditure can be more strictly monitored and precautions can be taken quickly if the expenditure exceeds the established budget. Only through proper budgeting can individuals or households create the necessary surpluses to pay off existing debts.

Certain financial resources, such as Excel spreadsheets or even Mint.com, are particularly useful for keeping a personal or household budget.

The biggest problem for a person who does not keep track of his / her monthly expenses is that he / she does not know if he / she ends the month with a net reduction in savings, i.e. the expenses exceed the income and food to save. Knowing the amount of remaining balance is crucial, because a continuous negative balance can lead to the creation of new debts. It is this type of debt that is most dangerous because it is turned over month after month at apparently manageable interest rates. Before the person knows, he / she would only have made substantial payments.

So tracking tools are crucial in identifying weaknesses in a person's monthly spending pattern, but an individual must take positive action to reverse the negative balance situation. This can be done by listing the monthly expenses and using the necessary cuts on certain expenses. Discipline is the key.

2. Loading debts per interest rate

Debt loading is another technique used to settle outstanding debts. It is about enumerating all current debts by interest rate, starting from the highest interest rate to the lowest interest rate. The debt with the highest interest costs the most money, so this debt must first be settled.

By first paying off the most expensive debt, the total debt will be reduced considerably faster. Some individuals who incur multiple debts per month and use ladders in their finances usually settle the minimum payment required for each debt, and use the cash balance of their payments to settle more of the debt with the highest interest.

For example, let's compare two debt instruments: one, a credit card with an outstanding balance of $ 4,000 with an interest rate of 24% and another, a credit line with an outstanding balance of $ 8,000 with an interest rate of 16%. Ideally, the minimum monthly payment needed to settle each debt should first be made, and any remaining finances would be used to repay more of the credit card debt, even though the amount due may be lower.

Laddering is particularly useful when tackling multiple debts and prevents accidental creation of a new debt. Laddering also creates a sense of financial discipline that is good at resolving unresolved debts and preventing those debts from causing too much damage to those retirement plans that you have in mind.

3. Balance transfers

Balance transfers is another tool used to lower interest costs while at the same time attempting to pay off a debt over several months.

Given the competitive nature of the unsecured credit market, for example, banks often offer very low rates for customers who transfer their existing unsecured debt from other banks. The effective interest rates can go up to 4% p.a. versus the normal 24% p.a. people pay on credit card balances. However, the catch is that such promotional rates are only valid for a certain period, for example 6 months. Balance transfers can nevertheless reduce the interest costs of an existing debt.

Balance transfers carry their own risks. Individuals transferring balances should not forget to settle the debt after the transfer or look for another option before the lower interest on the account to which the balance is transferred expires, otherwise he / she risks an even higher interest. Pay.

Individuals who use the balance transfers cannot also address the ongoing accumulation of debts, thereby eliminating any benefit from such a strategy. Ultimately, despite this cost-saving strategy, private individuals are even more likely to have debts that affect their savings, not to mention future pension plans.

4. Contacting consumer credit advisory services

If a person has huge problems with settling his debts or even with the minimum monthly payments, he should consider engaging a consumer credit advisory service. In Singapore, this service is aptly referred to as Credit Counseling Singapore ("CCS") and offers solution-based credit counseling for those affected by financial debts.

The CCS's debt management services cost just $ 130 and debt-laden couples with a credit advisor. The credit adviser will assess the indebtedness of an individual's situation and help him / her by making a financial estimate of the debts owed, identifying available resources that can be used to cover the debts, and even planning a monthly budget covering all the costs of includes living expenses. Solutions to tackle the debt problem and monthly negative balances are distributed to alleviate the debt burden.

If someone is concerned about how his / her debt would affect his / her retirement plans, contact with the CCS would be the right way. If the old debt has already been taken into account in the pension plan, a proper financial restructuring can reduce the interest and repayments to be paid.

Even the best retirement plans can be compromised with unpaid debts. By adopting better financial habits, such as drawing up a budget, transferring debts and transferring balances, an uncertain debt situation may be easier to handle. If a debt problem persists, the CCS can be called in to come up with a solution to avert outstanding debts. Financial advisers can also be consulted to better streamline finances and handle monthly expenses, thus ensuring a safer and better pension in the future.

Financial Alliance is an independent financial consultancy firm that provides its clients with sound and objective financial advice to protect and grow their wealth. Financial Alliance is a trusted brand in Singapore and has been providing the financial future of its customers for 15 years. For more information about Financial Alliance, click on the link: http://www.fa.com.sg/