On the Highway to Becoming Financially Independent

Singapore has one of the most open economies in the world and it is ranked in the top 10 least corrupt countries in the world. For a money lender this is the ideal place to do business. The country has a high external debt and the population tends to follow the same trend. Even if the money is used for an investment and spent wisely, even at an individual level, debt needs to be managed properly.

The average household debt per capita in Singapore reached $55.000 and comprised about 21.4% of total household liabilities. Reaching financial stability can only be achieved by properly managing this debt. This means properly dealing with credit cards, loans for a car or payments for a mortgage. Planning is a bit part of it and there are a few guidelines that everyone can follow.

Setting Up a Budget

In general, debt means that people spend more money than they make. To compensate, they take loans and pay them back over time. A budget can help manage expenses properly and see were money goes. Even simple things such as eating out at an expensive restaurant or buying a cup of coffee in a coffee shop will add up.

The first step is to strip down all the expensive and leave only the necessities on the list such as rent, mortgage and utilities. Any other payment for loans should also be added to the list and need to be paid back as fast as possible. Any unnecessary expense that can be eliminated needs to go off the list. Going to a beauty shop, getting new clothes or eating out are not necessities. They are commodities and they can hurt a carefully planned budget.

Eliminating Credit Cards

Credit cards are genuine black holes when it comes to spending. A good solution is to use cash instead of credit cards and try to stick to the budget. Anything that is on the list can be paid with cash.

The problem with credit cards is their high interest rate. People that get easily tempted to overspend should never have a credit card on them. Credit cards should be eliminated completely. They should be locked away and always stay at home.

Paying More Than The Minimum

Interest rates is what makes credit card companies money. They need their customers to stay in debt so that they can make more money. It is great business for credit card companies but it is bad for the budget.

To put everything into perspective, for example if someone has a debt of 10000 and an interest rate of 18%, after 3 years, the credit company will get $4000 in interest only. That is a lot of money that simple goes down the drain. The faster the credit card debt is paid, the better. Paying it back one year earlier will save 18% of the total spent amount which is why it is recommended to pay more than the minimum whenever possible.

Debt Prioritization

Credit card debt can add up fast. It can become overwhelming and a lot of people do not know how to handle it. This causes some to even skip on some payments or just create more debt to cover previous debt. It is not something that cannot be fixed and there are two ways to do it:

The Snowball Method: This method is quite simple and easy to understand. The smallest debt needs to be prioritized. Whenever possible it should be paid more than the minimum monthly rate. The sooner it is paid off the better. This means a monthly credit card bill is eliminated. The extra money available can be used to pay the next smallest debt. This process can be repeated until all credit cards and paid off.

The Stacking Method: This method works just like the Snowball method but the other way around. The biggest debt becomes the main priority. It needs to be paid back as fast as possible while for the other credit cards, the minimum payment should be enough. When the biggest debt is paid, it is time to move to the next one until there are no more credit cards to be covered.

Mortgage Rate Renegotiation

Besides credit cards, mortgage loans are the biggest type of debt that people have. These are long term loans and the monthly payments can have a heavy toll on the budget. Renegotiating the interest rate of a mortgage may offer a way out of other types of debt. For example, for a mortgage of $300000 and an interest of 7% that is renegotiated to 5%, a user will save about $400 every single month. The numbers will vary depending on the value of the mortgage but even if it is 3 times smaller, the money saved every month can help a lot. It can be used for example, to make extra payments on a credit card.

The only downside is that not all lenders are willing to offer a lower rate. It never hurts to try and ask for a mortgage renegotiation. If there are some financial hardships such as an illness, job loss or other types of problems, lenders might accept to lower the rate. They would rather negotiate than just lose a customer especially if it is the primary residence of the mortgage owner.

Mortgage Rate Refinancing

Refinancing a mortgage can help lower monthly payments. It restructures the mortgage offering a lower interest rate but at a cost. Refinancing also implies closing costs that will increase the amount of money paid back on the mortgage on the long run. The benefit is that it will free up money on the monthly payments that can be used to pay smaller debts from other loans or credit cards.

In some cases, refinancing and closing costs can be much more expensive than the actual savings and might not be worth taking this risk. It is important to look at the numbers, make some estimates and take into account the extra money saved on monthly payments. Having a plan is important. Not know in advance what to do when taking a refinancing deal can actually deepen the wound. Most banks in Singapore have custom tailored financial products to meet the demand from the market (customers) and offer financial advice. It never hurts to have a chat with someone and think of a financial plan.

Saving Up Money

There is no point in getting out of debt to create more debt. The whole purpose of getting out of debt is to be financially independent. After all credit cards are paid off, it is time to save the extra money. They should be placed into a savings account and used only when needed. Credit cards should be a thing of the past and never be used again. To read more on financial advice at Easy Credit financial portal

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