Debt Management

The older you get, the easier it is to see practical reasons why so many of us use a credit card or borrow money for a car, house, vacation or any other major expense. Debt can eat into our pay and savings for months or years on end.

Instead of letting these debts gnaw away at your money, you can use this guide to take control of them.

How to manage your credit card debt

Credit card interest rates can be high and pile on the extra charges quickly and it’s important to get on top of your balance (or balances) as soon as possible. Here’s what to do:

Make regular repayments

Always make at least the minimum payment before the due date. If you’re someone who tends to be forgetful, use the autopay option to ensure you’ll never miss a payment.

Usually you’ll have to pay 1% to 3% of your balance. But, since interest is calculated based on your daily balance, you can actually reduce the amount of interest that’s charged each month by making additional repayments.

Pay more than the minimum

It would take years to pay off your credit card if you only paid the minimum each statement. Check out the example:

It would take 33 years to clear the balance paying only the minimum. But if you paid S$300 per month, your credit card debt would be paid in 1 year and 7 months and cost a total of S$5,698. That’s big savings.

0% balance transfer

Consider moving your debt to a card that offers 0% interest during the introductory period. Balance transfer credit cards give you a window of time to make repayments without accruing extra interest.

The only thing to be aware of is that at the end of the promotional period, the 0% interest rate reverts to a higher standard rate. So ideally, you want to be able to clear your debt before that happens.

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How to repay your car loan

Whether it’s your first set of wheels or a shiny new upgrade, a car loan is a popular way to finance the purchase. But vehicles depreciate and in a few years you could find yourself stuck making payments on a car that’s not worth half as much anymore. Here’s what you can do about it.

Make additional repayments

Early settlement for car loans in Singapore is calculated using the Rule of 78. This is a formula used to compute the interest charged on a loan across its payment period. While this may seem like a rather complex calculation, it only requires a few steps which we’ll illustrate in the example below.

Consider refinancing your car loan

If your current car loan is costing you too much, it’s possible to switch to a loan from a different lender. This can help you save on interest, additional fees and even offer more flexibility with repayments.

Be sure to weigh the costs first, as refinancing could lead to exit fees from your old loan and processing fees for the new one. Compare your options to see if refinancing will help you save money and payoff your car faster.

How to cut down your student debt

There are lots of financial factors that can lead to debt when heading off to college. From student loans, credit cards, personal loans and car loans for students, here’s what you need to know.

Student loan debts

Unless you pay your tuition upfront, you’ll likely be taking out a student loan to help pay for postgraduate studies. Whether it be a government or private student loan, there are a few ways to score better interest rates and get out of debt quicker.

• Refinancing. By refinancing your student loan debt, you are simply taking your original loan and shopping around for better interest rates and payment terms.
• Consolidating. Consolidating is essentially the same process as refinancing, except it involves multiple loans. This could simplify two or three different payments into one monthly payment.

Student credit cards

Getting a credit card when you’re a student can help you pay for textbooks, lodging and food. But, if you use the card irresponsibly, it can have a serious impact on your debt. So if you do decide to get a card, use the following tips to manage it responsibly:

• Compare cards and choose one with low rates and fees.
• Always budget for your repayments.
• Aim to pay off the full amount by the due date on your statement.
• Only use it when you know you can afford to pay it off by the due date.

How to manage your mortgage

While the dream of owning a home or a bunch of investment properties is very appealing, mortgage repayments can quickly bring us back down to earth. Still, your dream for property can become a reality and stay affordable with the following tips.

Change your payment frequency

Interest on your mortgage is calculated daily and paid monthly. This means you could be able to save some money on interest charges by choosing to pay in biweekly or weekly instalments. Just make sure to check the restrictions and terms based on your payment frequency.

Pay more than required

If your loan allows it, you could be able to save a small fortune by paying extra on the monthly amount. There are a few different ways you could do this:

• Lump sums. If you come into a large amount of money (lottery?), you could put a chunk of it towards your home loan to shave off some of what you owe.
• Higher repayments. Paying more than what’s required for the month will help reduce the cost in the long run.

Even a small amount can have a big difference over the long term. Always check the terms and conditions of your loan to make sure extra payments won’t attract additional fees or variations.

Paying off a personal loan

Personal loans can be used for just about anything from financing a vacation to paying for large purchases or consolidating debt. Depending on the type of loan you get, you could consider some of the following strategies to keep your debt at bay.

Apply for a Personal Loan with Lendela

Receive a customised personal loan that meets your financial needs.

• Quick application
• Borrow up to S$100,000
• Apply once and receive multiple personalised loan offers
• Requirements to apply: 18-70 years old, Minimum monthly income of $1,200, Salaried Singaporean / PR / EP holder

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• Make additional payments. Usually available for unsecured personal loans, this strategy allows you to save money on interest and pay off your loan faster and earlier.
• Choose a short repayment term. You’ll pay less each month with a longer term, but it’ll end up costing more over the life of the loan. By opting for the shortest loan term you can afford, you’ll keep costs down. You can always contact your issuer to request a longer or shorter loan term.
• Set up automatic payments. Personal loan repayments are usually the same each month, which makes them easy to budget for. To simplify repayments even more, you could look at setting up an autopay so you don’t have to do it manually every month.
• Move the remaining debt to a 0% credit card. If you have a small balance on your personal loan, you could be able to save money by moving it to a credit card that offers 0% interest on balance transfers for a promotional period. Before you apply, make sure you compare your options and consider whether you’ll be able to pay off the balance during the promotional period.

Frequently asked questions

• What if I have bad credit?

  It’s still possible to qualify for lower rates than what you’re currently paying, especially if your credit score has improved since when you incurred the debt. There are loans for those with bad credit. However, these options usually mean higher interest rates and charges.

• What's so great about consolidating my loans?

  When you consolidate your loans, not only are you simplifying multiple payments into one, you’ll likely get a lower interest rate too if you have good credit.

• How long do 0% introductory periods for credit cards typically last?

  While it varies between providers, 0% introductory periods typically last from 3 to 12 months.

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