There are plenty of people in Singapore who have amassed a significant amount of debt on their credit cards (source from Straits Times) and have accumulated overdue debt. A lot of them are presently in the process of gradually paying it off but the process is very slow. It is also not as if this loan payment is the only expense that they need to deal with – they have to make arrangement for meeting other similarly critical expenses (home loan, car loan, renovation loan, business loan, etc) as well.
The biggest problem is that all of these debts carry different rates of interest of repayment. This only makes it even harder to keep a track of expenses and control them in the long term.
At the present moment there are a number of credit unions in Singapore that are offering people a chance to avail debt consolidation loans. For people, likes the ones who have been talked above, such loans are like god-sent opportunities since they allow you to collate all your debts in a single loan and take away the unnecessary and incessant headaches.
With these loans you can pay off all your debtors and concentrate on paying just one loan in a month. However, there are a few things that need to be taken into consideration before these loans are availed.
The main idea behind taking loans is to reduce the rates of interest you are paying in order to pay the loan off. So, you need to make sure that you are achieving that with these loans. The idea of availing these loans can be rather tempting. After all, you can dispose off all your credit card bills.
You do not need to make many payments to different lenders. This is something that can get to your head. The road to being debt free is made much smoother by these loans. However, there are a lot of other things associated with these loans that may make the situation even worse later on.
If financial experts are to be believed these loans are nonsense in most situations. One can jolly well do without them! However, it is really difficult to ignore these loans considering the benefits that they offer. It is also important that you keep in mind the fact that these are after all financial products – not charitable offerings.
Companies will not be offering them if they did not have any profit to make out of them. You need to take into account the time period and interest rate of the loans you are paying and the debt consolidation loan you are considering. Once you do the calculation and compare both will you be able to take the right decision.
In certain cases you may be paying a smaller rate of interest with consolidation but the loan repayment term may be much longer. That would mean that in the end you are paying much more than what you would have done with your credit card or other present debts. So, it is better to concentrate on paying them off in a shorter period of time.
It is not rocket science. All it takes is some financially responsible and mature behaviour on your part and you may have paid off the debt much quicker than you can realize.
There are several ways in which you will be able to manage your debt in a much better way than taking the conventional options like a debt consolidation loan. In case you are experiencing issues with your cash flow the first thing that you need to do is to create a budget detailing your income as well as expenses. This will give you a better idea of things and you will be able to come to a decision regarding the expenses that could be cut off in order to save money.
In this instance you can delete expenses that are not necessary and ones you can always do without such as eating out and going to the theatres to watch the latest flicks. Keep this spirit of abstinence till the time you are financially sound and then you can start enjoying life again. This will also make sure that you do not face any undue problems with your debt payment. As a general rule of thumb, your debts should not be more than 35% of what you are earning in a month.
The lower your income, the lower should be your debt percentage. For this, you should review your debts on a regular basis. There should ideally be only one source from which you have taken debt. This way, you will less heads to worry about and you yourself will be in a far better position to monitor your debts. It is also important that you pay off all your installments at the time they are supposed to be paid and in the right amount as well.
This will make sure that you do not have to pay the penalty charges that only make the situation far worse than it already is for you. In case you are unable to do so, get in touch with your lender and ask for any help that may come your way. One way to pay off debt quickly is to increase the frequency of payments. The second way is to make lump sum payments as and when you are able to. Whenever you have some additional money, ask your lender if you can use it to pay off a part of the loan.
However, you need to ask your lender if by doing so you will incur any penalty or not. Also ask them if any advance notification needs to be provided for the purpose. In case you have a lot of debts to deal with you can also start off by paying ones that carry the higher rates of interest. Normally the credit card debts are ones with the highest rates of interest. Hence, it could be prudent to start off with them. In case you are unable to pay the whole amount in one go, pay as much as you are able to.
Do share with us what you think. If you have more questions or thinking of having a debt consolidating loan, do contact us here.
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