Whether you are a debt-averse person who is extremely concerned about the risks of loans or an individual who currently has debt from various lenders, everyone can benefit from learning about effective debt management.
While generally negatively associated with danger and failure, debt need not necessarily be wholly bad. Indeed, young businesses do often to choose to incur debt rather than give away equity as it costs the owners much less in the future. Debt may also be used as leverage to help individuals take advantage of perishable opportunities, which may not exist by the time sufficient capital is raised.
Nonetheless, where effective debt management is not applied, individuals and businesses alike are likely to run into trouble. Hence, this article aims to help illuminate simple debt management strategies and tactics. Before doing so, it is important to note that you should only borrow from a licensed money lender who abides to the regulations set by the Registry of Moneylenders. These regulations are part of the Moneylenders Act and Rules, which are designed to protect you from unfair industry practices and shady products.
Controlling Your Expenses
At the top of our list is a simple yet effective control measure, a monthly budget sheet will help you to determine the amount by which your income lags behind your expenses. Additionally, it serves as a base for you to properly allocating your income while cutting down on excessive expenses.
Limiting Your Debt-to-Income Ratio
The Debt-to-Income (DTI) ratio is calculated by dividing the total recurring monthly debt by your gross monthly income. While various sources recommend various ideal DTI ratios, generally your DTI should not exceed 36%. Most moneylenders are unlikely to offer you favourable interest and repayment terms if your DTI exceeds 43% as studies have shown an increased likelihood of defaulting payments.
Monthly Repayment Loans in Singapore
Not only do prompt repayment of instalments prevent your current debt from exponentially increasing, but it helps you to retain your credit score. All money lenders keep track of your credit score and use it as a determinant when deciding future interest rates, be it for the restricting of your current debt or for completely new loans in the future.
The prospect of early repayment of your loan is favourable as it reduces the overall amount of interest payment for the loan. This can be done by requesting for a more frequent repayment schedule or through lump sum payments. While ideal, certain loans do not allow for such arrangements, be careful to check for early repayment penalties when taking a loan.
Keep Tabs on Your Credit and Consider Debt Consolidation
While this should go without saying, you should actively identify debts with the highest interest rates and pay them off first. Additionally, you may wish to try to consolidate your various sources of debt by transferring all outstanding balances to a single package with more favourable interest rates.
Ask Your Lender for Help
Rather than keeping your lender in the dark about the difficulties you foresee in repayment, you should actively consult and cooperate with them. Under various hardship programmes, they are more likely to help you effectively manage your debt and work out a feasible solution. It will also help when you attempt to apply for a future personal loan in Singapore.