Best Ways to get out of Debt

While the festive seasons may be cause for celebration, there will be a certain percentage of adults who dread these two occasions on account of the shoddy conditions of their pockets. Many married adults will be scampering to find money for the new year’s expenses, without much luck or planning. This article shares ideas and tips on how to better manage your personal finance in general, how to avoid more debt, cut down existing debts and how to stash away some money for a rainy day.

The key to financial success, as most personal finance gurus will tell you, is discipline. I cannot emphasize this aspect enough. The best plans to rescue your dire financial situation will come to nought if you do not possess an iron will to see your plan through from day one. But what if you do not possess an iron will that rivals Bruce Lee’s? Fret not, you only need to know you are not alone and therefore, be kind to yourself and give yourself another chance. That’s it. The next key idea is to keep on trying. The world’s richest folks did not become millionaires overnight. They eventually become financially secure because they kept trying, even if they fail. You can do the same.

Pay yourself first. Again many books will recommend paying something like socking away 10% of your salary before you start spending on bills. If you have unsecured debt and can’t even repay the minimum repayment sum, socking 10% of your income away sounds very unwise. A more feasible option would be to start small, say 5 or even 3%. As long as you stash away some cash every month, time is a wonderful healer and you will see a healthier bank account over time.

Second, the credit card scourge. I have witnessed my own family member burdened under a mountain of debt in which he neither has the will nor the financial power to break from. If you are truly determined and want to break out of the grasp of this mire, first try to make up your mind on what you need your cards for. Are they to pay for daily groceries or to pay for something to pamper yourself with but deep down in your heart you know you can do without?

If it’s the former, try to shop less and buy cheaper substitutes for the same kind of benefits. For example, you can skip eating beef by replacing with tofu. It’ll save you tons of money. Back to the topic, decide which card you’ll keep for good and ditch the rest away. Chances are you’ll be confused over which card to retain, right? All of them seem to give unbelievable discounts and privileges so it’s hard to make a decision. Convince yourself that if you’re going to wage a war against the major retailers, keeping one card will not sorely disadvantage you too much because anyway, you won’t be spending!

In addition, many cards have hefty annual membership fees. Consumers really shouldn’t pay for credit card memberships. Stop wasting time and sleep over these fees .Call the banks and cancel them for good. You’ll find yourself a happier human because you now simply spend less time keeping track of payments. At most , limit yourself to only one card and be done with it. Decide that the credit card is to be used for purchases which you know you already have money in your savings accounts to pay for. I know it’s hard not to throng the malls and join in the festivity. Remind yourself you’re on an austerity drive and your sole aim is to stay financially afloat.

Many banks will offer tempting offers of unsecured credit. They will send you letters with attractive offers and give you an instant loan to buy or pay for whatever you want. Read these letters thoroughly. The interest rate may be a promotional rate for say, 6 months at 1%. However the catch is the 5% processing fees and the effective rate is a shocking 16 to 17 percent per annum! Do not take up these offers no matter how tempting they are because then you won’t be taking concrete steps to repay your credit debts. You are only prolonging the punishment for foolery. Taking up these easy loans will snowball your debts and make it that much harder to become debt-free.

The question is what if you have already taken loans and they have ballooned astronomically? My suggestion is to find out which banks charge the highest rate- typically 24% per annum and pay up the biggest debt first. Determine to pay off at least the minimum sum and if that cannot be achieved, at least make it a point to repay certain sum every month or every time you get income. If that is too hard and repaying that giant debt discourages you, then take a certain portion of your income and pay up the smallest debt first. It’s a morale booster to see that some bills have zero balances. I get a kick from repaying my debts the minute I receive their statements because I like to see zeros in the statements.

Learning to be grateful teaches us to be well, grateful. Count yourself blessed if you have food and clothes to wear. Translated into action, it means no more urgent urges to hit the stores to buy the latest fashion and accessories. There is also no hurry to try the latest restaurant so that you can impress your friends with your knowledge of good food and fine dining. By the way, car prices are at a high in Singapore and you may be tempted to sign on the dotted line for that new car you have always wanted. Remind yourself it’s a lot cheaper to hail a taxi than to own a car at this moment.

One final bit of advice from someone who has been through it all, stash your coins away every night. It may not be feasible or even wise to empty your coin pouch completely. A little joy is to empty some of the coins and eventually, you’ll fill up your piggy bank. In Singapore, the POSB bank offers the Kids Account. This account is allows the child to save with his coins. There is no service charge when kids deposit coins using this account. Just take the receipt and slot it inside the cheque deposit box. The bank will credit the service charge back to the child. Parents can take advantage of this feature and save their coins. I use this service every week after I have sent my child away to tuition class and then merrily, I deposit my own petty savings. I must add that over a period of six months, I have saved close to two hundred dollars.

As a desperate attempt to reduce my credit card debts, I empty all of my saving accounts balances into repaying my credit card debts as soon as I had transacted, sometimes on the same day. Falling below the minimum sum needed to maintain the savings account will incur typical service charges of up to SGD2 per month but it’s a better deal than having the banks charge you 24% interest on your overdrafts. Let’s not even get started on the compounding effect. For a start, read the back page of your credit bills and find out for yourself the annual interest rate.

A budget is useful if you faithfully analyse your spending patterns over a period of time. However, do take into account seasonal needs such as festive occasions or annual needs. For example, when the school terms end, it’s time to cough up money to buy your son’s new textbooks for next year, again!

Windfalls. I mention this because you’re likely to get bonuses at this time of the year. You could save a higher percentage of this income or, if you lose direction , waste it all on frivolous expenditure. I recommend saving it to build up an emergency fund of say 1 month for a start. It’s important to be able to sleep at night. A windfall can come in many ways. For example, if you bring a packed lunch to work and therefore has no need to hop into the canteen to forage for food, you would have saved close to $3. Consider that a windfall and sock it away in some secret compartment of your wallet so that you have less opportunity to spend it.

Again I encourage you to try saving part of your windfall. The idea is to get a kick from the act of saving. It’s generally a good idea to have some encouragement as you fight or attempt to reduce your debts or stay debt-free so that you do not get demoralised. It might seem  impossible to reduce your debt but if Mary Hunt could  and I did it, so can you!