Are you stuck with debt on multiple credit cards? Instead of panicking, start devising a plan that helps you attack the debt and manage it reliably. Spiralling debt can affect your life in more ways than one. Whatever your reasons for getting into such a situation, you need to find ways to get out of it.
Singapore, one of the most advanced economies in the world, has a fascination for plastic money. While payments made through credit cards are undoubtedly convenient, there is always a risk of getting trapped into a debt quicksand without realising it. Many people also take cash advances and loans through their cards during emergencies, further worsening the debt situation.
Singaporeans carry more than one credit card in general. As different category of cards offer different sets of features and benefits, many use multiple cards to get access to all these benefits. Many cards offer irresistible joining benefits and special promotional offers from time to time, making them powerful credit instruments.
But, the downside is that the rate of interest on most cards in Singapore is quite high. If you start falling back on interest payments, the debt can accumulate very fast. In addition to high interest rates of 24-28% p.a., you could end up paying late fees and interests on that if you fail to pay the minimum monthly dues.
While distributing credit over multiple cards is a smart choice, it isn’t healthy for your debt situation if you’re not paying off your outstanding balances on time or in full.
Reference: Here are some tips on how to manage your credit card debts
In order to pay off the debts on your cards, you need to know how much you owe on each. You should also list them in ascending or descending order, in terms of the debt owed or the rate of interest payable.
Paying off the outstanding debt on the card with the highest interest rate first is called stacking and is a popular method for settling credit card debt. The method entails you paying off more than the minimum balance on the card charging the highest EIR and paying at least the minimum amount on the other cards. As soon as you have paid off the dues on the card with the highest rate, start with the card with the second highest rate of interest while paying minimum dues on the other cards.
The second method, called snowballing, requires you to start with the card with the lowest debt. You must pay more than the minimum amount on this card and make the minimum payment on other cards. As soon as you pay off the lowest debt, start with the next highest.
While the second method may offer a psychological fillip, be warned that you could end up accumulating substantial debt, since the cards with the highest interest rates will continue to stay active for longer periods. As soon as you clear a debt, close the account because keeping an account open can attract fees and charges.
If you have substantial debt on different credit cards, start paying off the debt using either of the aforementioned methods. In addition, you need to lower the credit limit on a card with low interest. You can use this card to pay off your utility bills and take care of other necessities.
A Debt Consolidation Plan works best if your card debt is at least 10-12 times your monthly income. Many banks and private financial institutions offer debt consolidation loans. The lender will pay off the debt on your cards and you’ll have to deal with just a single loan. However, exercise caution while choosing a plan since many lenders charge excessively high rates of interest.
A balance transfer credit card in Singapore will usually charge you no interest or very low interest during the transfer period. Some banks may also offer full waiver of processing fees during a promotional period or for funds higher than a threshold amount. However, make sure that you pay off the entire due during the balance transfer period, which could vary between 3 to 12 months. The purpose of this arrangement will be defeated if you don’t pay off the full debt within the balance transfer tenure as very high rates of interest would be applied once the tenure is over.
Reference: Things you must know about Credit Card Balance Transfer
Sometimes, getting in touch with your credit providers is advisable. If you can provide valid reasons, they may decide to offer a lower interest or waive off a part of the total dues. They may also set up temporary repayment arrangements under which you’ll have to pay a fixed monthly amount till you have paid off your debt or your financial standing has improved.
If you find it difficult to manage multiple debts and need a little help with setting up your systematic plan, get in touch with a financial adviser who has the expertise to deal with such situations. You could either ask your bank to provide you with a counsellor or go to an independent consultant. You could also look at contacting the Credit Counselling Singapore (CCS), which can help you with debt management.
When you’re trying to get rid of your spiralling debt, you have to stop using your cards. Start using alternative modes of payment. You can, however, use a card with a low credit limit for emergencies. However, stop using the cards that charge steep rates of interest until you have cleared your debt.
Paying off your debt in full requires fiscal discipline and patience. Once you start to pay off your debt little by little, don’t stop the process. Set yourself a realistic deadline by when you want to be debt-free. Set up a budget and ensure that you have enough in reserve for your necessities.
Try not to make big-ticket purchases or investments during this period and contribute a little to your contingency fund every month to ensure that you have enough to parry a crisis.