Are your credit card statements lying unopened? Do you have nightmares of having to sell your worldly possessions to repay your debt? Do you spend most of your days pushing your debt problems to the recesses of your mind?

Well, we understand that carrying around a mountain of debt can be both frustrating and tiring. But accepting that you have a debt problem goes a long way in helping you take steps to get out of debt. And once you do come to terms with it, there is no stopping you.

So if you’re feeling a little lost and stressed about getting stuck in debt, here is our six-step guide to help you get out of debt quickly and achieve financial freedom this year:

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Step 1: Determine how much debt you have

Yes, this sounds scary, but it is a necessary step to take. How do you go about doing this? Well, open a spreadsheet or put pen to paper and make a list of the following:

· The outstanding balance on each credit card and loan that you have.
· The interest rate for each. (Interest rates on credit products are subject to compounding. And when you don’t pay your bills on time, the amount continues to increase. So, the longer you take to clear your debt, the more you end up paying.)
· The minimum amount you need to pay each month.

Once you have noted these down, arrange the debt in descending order of interest rates. This means that the credit card or loan with the highest interest rate will be prioritised over other credit products when it comes to paying your debt.

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If you find that the interest rate is the same across the list, prioritise in terms of the amount you owe. But instead of starting with the highest amount first, start with the lowest.

So, if you owe S$2,000 on one credit card and S$6,000 on the other, you will prioritise paying the S$2,000 debt first. Paying one card completely will give you the motivation to continue working towards clearing other debt. If a significant amount of your credit card debt is due to a cash advance, prioritise clearing that card first. This is because the interest rate on cash advances is always higher than the regular interest rate on your card.

Remember: Don’t get scared and overwhelmed by the amount you owe. Knowing how much you owe and prioritising your debt will help you make the right decision when it comes to making monthly payments.


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Step 2: Determine how much you can afford to pay each month

Now that you know which credit card or loan you will be tackling first, it’s time to figure out how much to pay towards each credit product every month.

How do you do this? First, take into consideration your monthly expenses. (If you don’t already know how much you spend each month, there is no time like the present to start.) Your list should include expenses such as rent, utility bills, installment payments, transport transactions, and the like. It should also include how much you spend on coffee, on eating out, and all other purchases that you make in the month. Basically, each time you spend a dollar, note it down! Try these money apps to help you keep track of your expenses. 

Now, unless you have been maintaining a daily expense ledger there is no way you will know how you spent every dollar, so an approximation works as well. Don’t forget to include the minimum amount you owe on all your cards and loans each month.

Next, eliminate unnecessary expenses. The fastest way to get out of debt is to put more money towards paying it and spending less on things you don’t need.

Finally, see how much you have left at the end of the month and put aside at least 30 per cent as savings. The remaining amount you will use to clear your debt.

What happens if your balance is negative, though? If your expenses are more than your income, the next step is something you could take advantage of.

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Step 2.5: Find a side hustle

This step is only if you aren’t able to significantly increase the amount you pay towards your debt. Of course, even if you are able to increase your monthly debt payment, a little extra money never hurt anyone. From freelance writing to taking surveys online, there are a number of ways for you to supplement your income. If you are looking for a side hustle, check out this list of websites and apps to help you get started.

Step 3: Make your payments at the beginning of the month

This is probably one of our favourites. The logic is simple. If you make all your payments the minute your salary is credited into your account, you won’t be tempted to spend it (especially on “emergencies” that only seem to crop up at the end of the month). Doing this will also give you a clear picture of just how much you can spend (or not spend) for the month.

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Step 4: Reduce interest rates

You probably never even thought that this was a possibility, but it is! You could reduce the interest rates on your credit cards and personal loans by using any of the following methods:

1. Balance transfer

You could transfer your credit card debt to a 0% interest balance transfer. So instead of paying multiple credit cards with varying rates of interest, you can transfer the outstanding balance to a single credit card up to the credit limit available on that card.

Most interest-free balance transfers tend to have 6-month or 12-month tenures. While balance transfers are a great way to reduce the interest payable, you should remember not to use this credit card for retail purchases since the 0% interest will not be applicable then. Moreover, you should look at paying the entire amount before the end of the interest-free period. This is because the interest rate shoots up to the card’s prevailing rate of interest after the end of the 0% interest tenure.

2. Personal loan

You could also consider taking a personal loan to pay your outstanding debt and make monthly installment payments towards the loan instead. This idea works because the interest rates on personal loans are lower than that on credit cards.

The downside to this though is that you may not always qualify for an amount that is enough to help you clear your debt. Moreover, the longer the tenure of the loan, the more interest you will end up paying even if the rate of interest is low.

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3. Debt Consolidation Plan (DCP)

When you find that your debt is at least 12 times greater than your monthly income and you are not able to keep track of the number of payments that you need to make, a DCP is a good idea.

DCPs help you consolidate multiple debts from various banks into one debt with one financial institution. So, you only end up making one payment for all of your debts. In fact, DCPs have tenures that extend up to 10 years. For instance, if you decide to consolidate your debt with POSB, then you can choose a tenure ranging from one year to eight years and the effective interest rate (EIR) starts at 7.23% p.a. This rate is much lower than credit card interest rates.

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Step 5: Reward yourself

Like we said in the beginning, getting out of debt is a scary process, which is why it is important to reward yourself at every step. When you celebrate your successes you give yourself a much needed psychological boost to continue paying your debt.

A good way to do this is to treat yourself after you successfully clear the debt on one card or loan. Once you see that the balance is S$0, go ahead and indulge in a great meal or buy yourself something. However, to make sure that you don’t end up spending more than you should, do stick to a budget!

Step 6: Rinse and repeat

Finished paying the balance on one credit card? Congratulations! Now, move on to the next card. Each time you clear one balance, you will realise that the amount that goes from your pocket towards paying your debt increases. Which essentially means that you can pay your debt off faster! And that is the key, really, taking it one step at a time.

While you work towards getting out of debt, remember that you don’t have to do it alone. You can always get help by attending a debt management session organised by Credit Counselling Singapore or even consider their Debt Management Programme (DMP). The bottom line, however, is that unlike what most people will tell you, debt doesn’t have to be a way of life. It is just a part of your life. And once you conquer it, it’s nothing but first-hand knowledge about the art of money management.

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Photos: Shutterstock


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This article first appeared on BankBazaar.sga leading online marketplace in Singapore that helps consumers compare and apply for financial products such as credit cards and loans.