What to do when in heavy debt
If you’ve only got a minute:
- Big spenders aren’t the only ones who end up with large debts.
- It is essential to keep a close watch on your spending before it spirals out of control.
- Once you build your debt plan, remember to adopt the right budgeting and spending habits.
Contrary to popular belief, racking up huge debts does not take much time or effort. A few months of reckless spending is all it takes to find yourself deep in debt, leaving you to deal with what can be a painfully long journey to recovery.
Big spenders aren’t the only ones who end up with large debts. Those who have smaller debts but choose to leave them unattended might end up in the same unenviable situation as money owed can easily balloon over time due to interest. In other words, a lot of small purchases on credit can add up to being quite the headache.
While the root causes for why people accumulate debts vary, the one thing that remains common is their inability to control their spending before it spirals out of control.
To avoid this from happening, there are tips you can take note of in order to avoid the credit trap.
For those trapped in a debt spiral, here are 6 steps to consider.
Seek support from your family
There is little dispute that the family is an important pillar of support in our lives. They are often our first “port of call” when we have grievances we wish to air or when we are seeking a second opinion on a variety of matters. Likewise, it is important to seek the understanding and support of your family members when in heavy debt.
The burden of a major debt can take a toll on your mental health as it can result in depression, a sense of helplessness, and a lack of self-worth. If these feelings are not addressed early, they may spiral deeper and the healing journey will be tougher.
It will be good to gather your loved ones to work out the family’s expenditure and seek everyone’s cooperation.
You may be surprised at how supportive your family members can be.
Device a plan to reduce debt
When facing a heavy debt, setting up a plan that will require you to adjust your spending will certainly help. One way is to list your debts and focus on paying off those with the highest interest rates first. While these might not be the largest debts you have, the effect of compounding at a higher interest rateover time means you will likely pay more in interest payments than covering the principal payment.
Another way is to focus on clearing your smaller outstanding debts first. Once you settle these, you are likely to gain confidence in your ability to manage debt, putting you in a position of greater control.
Keep your income records updated
You are advised to update your latest income records with the relevant financial institutions. This will help to avoid any inadvertent suspension of their credit cards and unsecured loans accounts as a result of outdated income information.
DBS/POSB credit card and unsecured loan customers can update their income here.
Understand the time taken to pay off debts
If you are unable to pay your credit card bills or unsecured loans in full, keep an eye out for an information disclosure statement that you will get from your bank.
This statement shows the total amount and time needed to fully pay off your debts if you only make the minimum payment each month. It also shows the amount of debt that will accumulate by the end of six months if you make no payments during this time.
Each table will be customised to a borrower’s circumstances. This information aims to help borrowers understand the cost of being in debt so they can better manage spending and cash flow.
If you have outstanding balances on your credit cards or unsecured loans, it is prudent to pay more than the minimum sum each month if you can manage it and stop spending on the credit cards or using the unsecured loans.
Debt repayment programmes
There are several avenues open for those in heavy debt to seek help in Singapore. One of these is to consider taking up a debt repayment programme.
The Debt Consolidation Plan (DCP) is offered by financial institutions like DBS. The Debt Management Programme (DMP) is a similar programme offered by non-profit organisation Credit Counselling Singapore.
There are different conditions for each programme. For instance, the DCP and DMP have different criteria and requirements.
With the DCP, you can still own one credit card with a credit limit of one month’s salary, which allows you to cater to your daily needs. This is not permitted under the DMP.
The DCP offers the convenience of consolidating all unsecured outstanding balances from multiple accounts with all banks into one monthly instalment repayment plan at an affordable interest rate. In most scenarios, the DCP customers will have a lower monthly instalment to repay than if the debtor were to manage the different accounts individually.
If you are considering declaring for bankruptcy, it is important to take note that there are long-term implications for doing it. You will not be permitted to apply for mortgage loans and the bankruptcy status will impact your employment opportunities. You should consider bankruptcy as a last option.
When you build your debt management plan and work toward repaying, it is equally important to use this moment to start over and adopt the right budgeting and spending habits.
Here are some tips for you to take note of:
- Save before you spend
- List your monthly expenses
- Be conscious of your fixed and variable expenses
- Make your credit card work smarter for you
- Have a contingency plan
These tips, though simple, go a long way to helping you to manage your hard-earned money better.
Ready to start?
Speak to the Wealth Planning Manager today for a financial health check and how you can better plan your finances.
Alternatively, check out NAV Planner to analyse your real-time financial health. The best part is, it’s fuss-free – we automatically work out your money flows and provide money tips.
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.