"Take the first step to become DEBT FREE again."

reducing debt

1. Prioritize your debts.

Mortgages or other secured loans like auto loans should take priority. If you default on these kinds of loans, you can face foreclosure or repossession. If, for example, your car is repossessed, it may affect your ability to work and adversely affect your income. Additionally, the car will be sold or auctioned off. If the sale of the car brings in less than you owe (which is usually the case in Singapore context), you will have to pay for the difference. As a result, you could be taking a public transport but still paying for your re-possessed car.

2. Use cash instead of charging on credit for your purchases.

Unless you have the discipline to spend within your ability and ensuring that you pay the total balance charged on your credit facility every month, it is advisable that you make purchases through cash payment. Purchases charged to your credit facilities that are not paid off every month will only cause you to incur interests that are compounded daily.

3. Work out your monthly income and expenditure

You should set aside sufficient money from your monthly income to cover your total minimum payments to your creditors and work on spending from what you are left with. Make sure your monthly payments are prompt and once you have managed to clear the smaller balances, transfer the additional repayment into clearing your remaining balances.

4. Pay more than the minimum amount due.

When you compare the finance charge column and the minimum payment column, you realize that most of your payment is going toward interest and little goes toward the principle. When you increase your payment, the additional funds are applied directly toward the principle. Years of payments and thousands of dollars can be cut from the life of a debt simply by adding a few dollars to the payment. For example, if your minimum payment is $25 and $19 dollars are going to pay interest, that leaves only $6 for the principle. If you increase your payment to $31 this month, it is like making two months payments toward the principle-essentially doubling your payment. The more you increases your payment, the less you will ultimately have to pay.

Min. Payment   Interest   Principle

$150                 $100         $50

$200                 $100         $100

5. Pay off higher interest rate cards first.

Dedicate more money toward higher interest rate cards because you will ultimately save in interest. It is better to owe $100 on an account that has an APR of 14% than to owe $50 to one at 14% and $50 to another at 19%. Note if there are cash advances on any accounts. Cash advances usually command higher interest rates than balances on purchases. Usually, your creditor will divide the payment on a percentage basis between the two balances. If you increase your payment, the creditor will divide additional payments along the same guidelines unless you specify otherwise. For accounts such as this, after you decide how much extra you can send, consider making the minimum payment as usual and write a separate check for the extra funds. Stipulate in writing that the extra payment is to be applied directly to the principle balance for cash advances. Verify how the payments were distributed in your future statements.

6. Pay your bills when you receive them, not when they are due.

Most creditors use the Average Daily Balance method of calculating interest. Reducing the average daily balance by making your payment sooner will ultimately reduce the amount of interest you pay.

7. Don't accept your creditor's offers to skip payments.

Interest continues to compound while you're skipping your payment. The longer your balance goes without a reduction, the more interest you'll pay. If you've established your budget and have scheduled payments, continue to make those payments until the balance is paid off

8. Consider transferring balances to lower rate cards.

You may receive offers of credit with low-interest teaser rates. These low rates are called teaser rates because they usually only last for 3 to 9 months. They offer to transfer balances from your other credit cards to theirs with the lower interest rates. In general, an opportunity to pay less interest is a fairly good idea but, if you are considering this step, you must consider more than the teaser interest rate. Examine the contract carefully before you apply for the card.

9. Don't make payment commitments you cannot honor.

Do not tell a collector "what they want to hear", just to get them off the phone. Remember also, in addition to getting your financial situation in balance, your other goal is to keep your credit record from hurtful bruises as a result of this temporary indebtedness. Collection agencies also report to credit reporting agencies once an account has been turned over to them. Your cooperation with them will make a difference in what, if anything they report to credit reporting firms.