How To Become Debt Free in 5 Simple Ways

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Credit-Score

Last month, the government announced something we thought was really fantastic. Yes, we’re actually enthused by something the government is doing. You can expect to see flying pigs soon.

Deputy Prime Minister Tharman Shanmugaratnam announced that Credit Counselling Singapore is expanding its services to offer a “centralised repayment solution” for those with “substantial” unsecured debts above their national income.

This means borrowers who want to become debt free don’t need to negotiate repayments individually with DBS, Citibank, your sister, your cousin’s mahjong buddy and everyone else that you owe. Credit Counselling Singapore will do all the debt consolidation work for you.

That’s right. ALL the debt consolidation work. Of course they will consider your income, outstanding loans and expenditure, but the ability to manage your debt so that you become debt free has been taken out of your hands.

So let’s call it what it really is – This is a FINANCIAL VENTILATOR.

To put it clearer, if you need the centralised repayment solution to become debt free, YOU ARE ON LIFE SUPPORT.

The newly announced repayment solution seems to be an expansion of the Debt Management Programme (DMP) that CCS runs. If you are in the DMP, your status will be registered with Credit Bureau Singapore, and it will affect the chances to apply for any further loans.

But let’s be honest here – if you’re seriously considering the DMP, you’re already not making full and prompt payments on your outstanding loans anyway. By that stage, it’s actually a GOOD thing to be “blacklisted” by financial institutions, since the last thing you need right now on your way to become debt free is the ability to borrow more.

If you’re not that desperate, but think you might be at risk, then you have the chance to control the situation. Take ownership of your debt RIGHT NOW, become debt free and get out of the debt spiral through these 5 simple (but not EASY) steps.

1. Admit that you have a problem

No, we’re not asking you to go to a 12-step meeting and say “Hi, my name is Peter and I’m an alcoholic” (although we’re not ruling out the fact that addictions often lead to debt), but there is value to taking ownership of the problem and acknowledging you can no longer put off any chance to become debt free. Please resist the urge to do anything stupid, including these 5 ways of dealing with debt that definitely don’t work.

2. Set clear goals for yourself

Don’t focus on your entire debt – unless you want a month long holiday in IMH. Instead, break down your debt into smaller, manageable parts, and prioritise clearing them one by one on your way to become debt free. Not sure which one to prioritise first? Here are 3 tips to help you get started.

3. Contact your creditors immediately and remain contactable

Ignore your fight or flight instincts – unless you owe money to loan sharks, in which case the latter option is definitely preferable. The biggest mistake debtors make is to avoid creditors and collection agencies. Believe it or not, they’re really more interested in getting your money than in ruining your life forever. Letting your creditors know that you have every intention to make payment will go a long way towards getting their help to repay your debt.

If you’re mainly racking up credit card debt, it might be possible to take up a debt consolidation loan. This means you take up a personal loan and pay off all your cards at once. This way, you only service one personal loan, which will always be at a lower interest rate than the 24% per annum rate that most credit cards charge. You can find the best personal loan interest rates here.

Of course, don’t make promises that you can’t keep. There’s no faster way to get legal action against you than to renege on your already negotiated repayment.

4. Pay off the debt with the highest interest first.

It seems like an obvious thing to say, but when you have several loans and credit card bills screaming for your attention, it’s only too easy to ignore logic. In the long run, it’s not the outstanding amount that matters, but the interest rate. So start with your credit cards first, since they usually have the highest rates. Here are some more ideas about choosing which card to pay off first.

In your excitement to become debt free as fast as possible, be sure not to unwittingly create more problems for yourself. Here are 4 important tips when paying off your credit card debt.

5. Become debt free, and stay free

Just as with diets, exercise plans or learning the guitar, becoming debt free is all about consistency and persistence. You need to have the mindset that getting out of debt is simple but not easy, so you cannot afford to slack. We give you 5 efficient habits to cultivate to keep you on track.

What tips and tricks do you have to become debt free? Share your thoughts with us!

Read more here: http://blog.moneysmart.sg/opinion/become-debt-free-5-simple-ways/