With the increasing cost of living and rising aspirations, millions of Singaporeans are struggling to cope with the never-ending demands of meeting both these ends. Far from the glorified Western myth of Asians being prudent consumers, we have been loosening our purse strings, so much so that an unfortunate debt crisis is looming large over our head.
A recent report by HSBC has revealed that “Singapore’s household debt as a share of GDP has increased to around 73% in 2013 from 48% before the global financial crisis, a notable increase compared to UK’s ratio which is pegged at 72%, a more or less stable figure from its ratio 6 years ago.” In the past several years, it has been witnessed that consumer debt has experienced a steep upswing across Asia. Contrary to the general perception, most consumer lendings were not limited to housing purposes, the purchases also included flamboyant cars, motorcycles and “everything else the heart desires!” Source: Yahoo Finance
Why People Are Getting Into Debt
It has been noted that nearly 3 percent of borrowers with unsecured loans in Singapore have debts exceeding their annual income. Most borrowers having trouble with debts have incomes higher than the median and have tertiary educational qualifications. Observed by Credit Counselling Singapore (CCS), the following list of most frequently cited reasons for getting obscured under a huge pile of debt certainly makes for a surprise yet grim reading.
1) Overspending and splurging
– Our national inclination towards big-spending has led to a bad habit of bigger borrowing. Over 49 percent of all debtors have referred to and blamed overspending as the key reason behind borrowing.
2) Job problems including pay cut and retrenchment
– Splurging faces stiff competition from job woes. The statistics show that approximately 46 percent of the debtors are people who have been retrenched or suffered considerable pay cut.
3) Entrepreneurial or business crises
– Next in line are business owners who ran into startling trouble with the cash flow. They have employed funds from unsecured credit cards to finance their business and ultimately wound up with increased monetary dilemmas. CCS shared that about 22 percent of the debtors blame their businesses for the mounting debts.
4) Unanticipated medical expenditure
– Another 22 percent cited the crucial factor of unforeseen expensive medical expenditure – either for the debtor himself or someone he knows – as the motive behind borrowing.
– A serious issue compounding the debt matrix, gambling is the factor that dragged as much as 22 percent into borrowing. Gambling is the culprit that hauled in 2 percent of the debtors in 2004. The figure has seen an upward turn of 17 percent in the first two quarters of 2015. However, it has gone down to 31 percent from 2014.
6) Lack of savings
– The sheer deficiency of saving for the future has only added to the trouble of increasing debt. Saving is a compulsory ‘skill’ that needs to be inculcated in our behavior. Regular saving helps one become and remain financially independent, invest in a home or car, provide for unforeseen expenses, emergencies, and most importantly, stay out of debt and lead a stress-free financial life.
7) Little investment to increase wealth
– Money management also calls for regular and smart investments to get a good payoff with low or minimum risk. Intelligent investment can help one to save on tax and yield considerable wealth out of even a limited income over a period of time.
How to Get Out Of Debt in Singapore
Leading a debt-free life, even with the higher cost of living in Singapore, is possible. It would only require a certain amount of dedication and acumen from you to turn around the finances spiraling downwards. Here is the 10-step plan to help you quit borrowing and commit to a healthy money management habit.
1. The amount of your debt
– Perhaps the most important and primary step is to figure out the precise amount of your debt. Write an inclusive list containing the amount you owe, types of credit, lender details, and the rate of interest for every debt. Alternatively, find out your credit record from any credit reference agency. It is a daunting task to face your debts but it is an absolutely necessary step towards your goal to become debt-free.
2. Share your worry and speak up
– If the exorbitant debt brings on a nervous breakdown every time you think about the repayments, it is time to start communicating with your partner about it. Sharing the problem with your family will alleviate the sense and stress of constant panic. If you cannot do that, seek help from a debt counselor and share your problems.
3. Figure out your expenditure
– Now that you are ready to face the challenge head-on, you must think about a personal debt repayment plan. However, to understand how much it is realistically feasible for you to pay every month, you must work out the exact amount of inflow and outflow of cash.
Create a budget where you comprehensively list out all of your monthly outgoings against the net income. Do this for an average period of the last six months. You can also take the help of your partner to incorporate even the minutest of outgoings, so as to get a whole idea about the regular cash flows. Free expense apps on your Android or iOS can also help you do this accounting without any problem.
4. Evaluate and Analyse your expenses
– Once you know the exact expenditure statistics, it becomes easier to identify the particular areas where you can effectively cut back to open up more income. It is simple to make significant savings without doing any drastic changes to your existing lifestyle. This can be achieved by reviewing your regular and recreational expenses.
5. Assess your spending habits
– Once you successfully trim regular expenses, give attention to your day-to-day spending. Checking in the urge of overspending or frequent splurging is certainly helpful when you are considering freeing up as much money as possible to repay your debts. Budgeting does not necessarily mean stripping away all the joys out of your life, but it calls for an innovative way of thinking and a level of compromise.
6. Assess your debts
– Debts can extensively increase by the high rates of interest causing it to surge faster than you can manage to repay. Intelligently rearranging the debts to credit cards and other lower-cost loans will lessen the number of repayments and help you clear them quicker. This is definitely not equal to borrowing more money to repay debts – an extremely dangerous method that should be customarily avoided for compounding your stresses and debts at the same time.
7. Prioritize the debts
– Once your debts are assessed and you have gradually trimmed back the spending habits, it’s time to focus on clearing them. The intelligent and effective method is to repay the least amount first. At the same time, negotiate for a lower interest with your debtors that has the most amount. Banks in Singapore are open to negotiation if your debt with them is huge.
8. Employ your savings
– If you genuinely want to save without repaying steep monthly charges, employ your existing savings funds like work bonuses and others to clear up the debt. Because a delayed debt will be costing you way more than the meager savings you can accomplish during that same tenure.
9. Transform your habits of spending
– Remaining debt-free asks for a complete transformation in your attitude towards money and spending. The scary experience of debt is often adequate to change the way you approach money. The key lies in living within your means and get back to the basics. Managing your income more prudently and carefully will help you stay away from borrowing.
10. Start saving and make it a practice
– Saving more and saving smart is a vital life skill that will stand you in good stead for the years to come. Once you have repaid those debts, it is important that you start saving to avoid relying on credits and refrain from borrowing in the future when a big expense is required. Build up a cash fund for easy access before you consider other investment options. An emergency fund is also equally important for you and your family.
Living without debt is possible even if you are leading a busy and expensive life in a costly country like Singapore. It requires a positive mindset and intelligent planning to avoid the painful and horrifying situation of insurmountable debt.
Instilling fundamental saving skills and a more guarded approach towards money will help you to do away with the requirement of a debt. Start rationalizing your budget and start saving today.