According to an article published on The Straits Times on 1 August 2013, Singaporeans are loading up more and more on debts and many are taking up multiple loans.
This is also made evident in the Yearbook of Statistics Singapore 2013; it shows that the number of pledges received at pawnshops and the numbers of loans have shot up significantly between the years 2011-2013. Obviously, this has shown that Singaporeans may have difficulty in managing debts and require help to manage debts.
As it’s becoming easier to apply for credit options such as credit cards, credit lines and loans, the number of young adults running into debts are increasing as well.
6 Tips to Manage Debts Better
So how should you ensure that you don’t end up being buried under a mountain of debt?
Here is a simple video by Institute of Financial Literarcy that shows us how you can learn to manage debts, and some take-away pointers from us at Empire Global SG.
1.) Don’t take up loans that you Cannot Afford
Before you get too excited about taking up a loan for your new Porsche or Ferrari, please bear this in mind – higher debts equals higher repayment terms which leads to lesser ready cash for your other expenses.
As a general rule of thumb, your total monthly servicable should not exceed 35% of your gross income. This is to ensure that you will be able to repay the loan with ease and not create a pit-hole for your future.
2.) Be interested in interest rates
Is it true that you should take a package with a lower interest rate? If you agree with that statement, you are probably paying more interest than necessary.
Effective interest rates reflect the true cost of taking up the loan as it takes into consideration the frequency and amount of the repayments.
This could means that although you are servicing a smaller amount of monthly repayments but you are actually paying more than one who pays a larger monthly amount.
Advertised interest rates on the other hand, are typically nominal rates, which have not taken the amount of loan and period of repayment into consideration.
Therefore, next time when you are offer an attractive loan rate, do not be too hasty to take up yet.
Ask the bank for the effective interest rates as well; calculate the exact amount that you need to repay after taking into consideration the amount of loan and the frequency of repayments before you decide whether to take up the loan.
Hence, if you are keen to manage debts, make sure you have adequate knowledge in the different interest rates and be very clear of what you are landing yourself into!
3.) Read Everything before signing anything
Unless you are a superstar who needs to autograph for 5000 fans within 2 hours, take time to study the contract carefully. Understand your rights and obligations before you sign.
If in doubt, question every term and jargon that you don’t understand. Know that you are the customer and have the right to know every detail thoroughly from the service providers.
Once you have signed on the contract, you are legally bound to the terms and conditions stated.
To manage debts well, do not make the common mistake that most people do when taking up a loan deal. Not reading the fine print!
4.) Don’t Borrow to Pay a Debt. Ever.
We cannot stress on this point any further – Never Ever Borrow to Pay a Debt. Do this in order to manage debts better!
If you need to borrow to pay for a debt, it shows that you are already having problems to manage debts.
Stop before you dig yourself into another hole! Look at some of the Stupidest Ways Singaporeans Deal With Debts and don’t follow in their footsteps.
If you think you can manage debts yourself, by doing so, you are totally wrong. Wouldn’t it be worse to have one more debtor coming after you for repayment?
Here are some steps from MoneySense to help you understand how you can become debt-free as soon as possible.
5.) Stay on track with the big picture
Are you getting confused over the different debts that you have? Are you unsure of what debts you are paying for every month and when are the repayments going to end?
To manage debts well, come up with a spreadsheet to have a better overview of the outstanding debts. It will also help you to prioritise which debt you should repay first.
As a general rule, you should always pay off the debt with the highest interest rates such as credit card debts.
This helpful infographic will show you 5 tips to save yourself from the credit card debts.
6.) Consolidate and save
Are you suffocating from the different debts that you need to repay every month? Perhaps it’s time for you to speak to your lender on the repayment terms.
Trust us; the situation will just get worse if you try to avoid payments. Have a good control over your financial situation; ensure that you do not have too many late repayments to prevent incurring more interest.
Your lender may be able to help you to restructure the loan. After all, all lenders would want their money back.
Don’t try to avoid your lender just because you are having problems with the repayments. Be open to them. Ask for help.
At the end of the day, the best way to prevent you from getting unhealthy with debts is to be able to manage debts well. Understanding your needs and wants, be able to differentiate between the two.
Focus on your priorities in life. Understand your needs and reduce on your wants, you will naturally be able to reduce your debts.
Before taking up a loan or swiping your credit cards for your next purchases. You should look at your monthly income, expenses and budget them accordingly.
Do you have the capability to support that new purchase? Ask yourself the questions before committing.
Therefore, as much as possible, we should try our best to manage debts before it gone badly and enjoy our lives within our own means.
If you can only remember one point, just remember this – Spend within your limits and plan wisely. Speak to the friendly loan officers at Empire Global SG for advice and assistance if you need further information.