Having runaway debt can be worrisome and hard to manage. Follow these proven hacks to repay your debt. Then regain control of your finances. When you use loans responsibly, a debt will never be an issue for you.
Listed below are some easy tricks. By using them you will ensure that your debts are dealt with correctly.
With minimal pain inflicted.
Rank Your Debts
Avoid paying your debts randomly. Prioritize your debts starting with the highest to the lowest interest rate. Focus on repaying the debt with highest interest rate first. As for rest only make minimum payments until you get to settling them. This is known as the stack method: after you finish repaying debts with high-interest. You will have extra cash which can go towards repaying the cheaper loans.
At the same time, you will save more cash in so doing. Since you are reducing the costs of interest repayments.
The stack method comes into play when you have balances across several credit cards. When all your cards have about the same rates charged. You could consider settling the smallest loan first. This will give you a psychological boost. This is after you repay one (of many) debts you owe. Therefore, you will feel encouraged to continue the good progress.
Switch To Low-Interest Loans
For every given month, at least 2-3 banks will be offering the lowest rates of interest. While the rest are more costly. You could make use of this to benefit you. For instance, given that you have S$15,000 owed in credit card bills. This accumulates with an annual rate of 26 percent.
Then after some researching, you find out that there is a personal loan with just 4.5% per annum. This is much cheaper compared to your credit card debt. You can then borrow a personal loan amount of S$15,000 at 4.5%. Then use this amount to repay your credit card debts. Thus your 26% per year loan has now become a 4.5% per year loan.*
*Do not start using your credit card soon after you have settled the bill. Actually, you need to cancel it after repaying it. Then when needed you can request for another card. But only after your personal loan has been paid in full.
Use Cash-Out Refinancing For Large Debts
When you have debt reaching large amounts (for example over S$100,000). Yet, you own a fully paid-for private property. It may be a good idea for you to consider the cash-out refinancing option.
Cash-out refinancing will allow you to access loan money. By using your property as collateral. The amount of loan is huge, about 80% of the home value. This is in contrast, to most personal loans which are capped at 4x your monthly wages. Importantly, the interest charged is low since your home is the security. The cash-out refinancing type of loans attracts low interests as 1.6% per year.
It is also a good option for selling your house. When you would like to retain your house as you repay your debts. This option may be your next best compromise.
(keep in mind that you need to have a private property for this loan. You cannot cash-out on the HDB flats).
Save As You Repay Your Debts
Do not put all your cash towards debt repayments. When you do not retain any money in savings. Then you will not have funds to cope when faced with emergencies. Unfortunately, this will lead to the use of loans or even credit cards over again. This will undo all your repayments, thus trapping you in more debt endless.
Keep at least 20 % of your salary in savings, until there is enough. The amount should total at least 6 months of your expenses. After this then can you channel all your cash to repay debt.
Consider Balance Transfers For Short-Term Loans
Balance transfers allow you to move debt from one card to another. This is for a one-time charge (normally about 1.5 % of the borrowed principal). After the transfer is done, you are given interest-free time period. Typically 6-12 months for you to pay back the debt.
This can be a great means to save money. This when you are confident that you will repay the whole debt. This is within the given interest-free time period. This is most helpful in situations when you have overshot a budget by the average amount.
However, remember to not charge more items for your cards. But only after your entire loan has been repaid. The reason for this is the balance transfers (from your credit card). It will default back to current interest rates. (normally between 24 to 26 % per year). That is once the given interest-free period ends.
After Repaying Credit Line Close Them Off
When you have several sources of credit. You need to close them off as once you finish their repayment. Continue doing so until you repay them all. From there you may consider taking a new credit card or loan.
In so doing you avoid the desire to use credit again. Particularly as you work on repaying it. Also, consider retaining only 1-2 credit lines/credit cards in future. That is when you find that you are easily get tempted to spend.
Lost Your Job? Consider Restructuring Your Debts
When there is a possible default. Most moneylenders would rather get back a portion of the money. Instead of getting none at all. Through a debt counselor, and through direct negotiations. The lender could adjust the repayment plan you have. It is very useful in during situations, like retrenchment.
The lender can temporarily hold the interest rates. Or lower them and extend the loan tenure. In extreme instances, they could forego part of the amount you owe.
Even then all of these instances will hurt your credit record. Possibly for several years. However, when you do not have means of servicing the loans, consider this option anyway. Or the damage may be a lot worse when the lender has to write off the loan. This default might spoil your credit rating for a very long time.