Credit card debts can be alleviated with careful planning

If you think you may have too much credit card debts begin to address it by honestly evaluating your spending habits.

By: Hitesh Khan/

Examine your existing expenses to analyse how your money is spent. You will most likely be able to identify the problem areas where you are more likely to spend too much or too readily with credit cards.

Then, based on your current spending practices, create a realistic budget to pay off your credit card debts in the shortest time possible while not adding any more debt to it.

Today, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to name a few) are part of almost everyone’s life. On the other hand, carrying credit card debt is usually not a good idea. At interest rates of 21% and up, it’s hard to justify keeping such spending or to keep accumulating such debts.

Debt and credit play increasingly important roles in our lives. As consumers age and get closer to their peak earning years, many are realising the need to reduce debt and increase savings. Even though analysing your spending habits and creating a budget to address your debt may seem a little overwhelming, the simplicity of the philosophy, ‘never spend more than you earn’ still stands. Once you have come to grips with this basic fact, managing your debt will become far easier and more rewarding.

If you get a credit card, you should plan to pay the full amount owed every month. That way you avoid the exorbitant interest rates the cards charge, and you also benefit from the grace period (which in effect enables you to borrow money for a few weeks for free).

In order to accomplish this, determine how much you’re able to pay on your credit card bill each month and then stick to that limit. At the end of the month, pay the full amount, just as if it were any other bill, like rent or utilities.

Also, examine each monthly statement to make sure there are no inaccuracies or fraudulent activity, and report anything you find immediately.

If you usually pay the balance in full but are going to be late with one payment, call the credit card company and find out how much you will be charged as a penalty. Include that amount in your check, so that the fee doesn’t appear as a balance on the following bill, which would eliminate the grace period and result in more interest charges.

If you expect to have difficulty paying off the bill every month, consider using a debit card (which draws from your bank account) or an American Express card (which doesn’t allow you to carry a balance from one month to the next). Remember that if you have credit card debt, you’re really borrowing from your future earnings, which is a bad habit to get into.

If you do feel that the debt you have might be a problem, here are a few tips for improving the situation:

• Determine how much debt you have, and put together a plan for repaying it. If you’re currently paying the minimum amount required on your credit cards, stop doing so, and pay the maximum you’re able to. If you pay the minimum, it will take you 20-40 years to pay off the balance, meaning you’ll pay more than five times the actual debt in interest.
• If you have multiple cards, pay off the ones with the highest interest rates first.
• Consider switching to a card that offers a lower interest rate.
• If you’re a homeowner, consider a home equity loan. The rate will usually be significantly lower than that of a credit card, and the interest on these loans is generally tax deductible.
• Avoid luxuries, impulse buying, and any unnecessary spending.
• Keep track of your expenses so you can determine where your money is going and keep a tight lid on expenditures that are higher than they need to be.
• Limit your credit card usage to the bare necessities, and cancel most of your cards, just keeping one or two. If the situation is dire, try to stop using your credit cards entirely.

If you have too much credit card debts, don’t expect a quick fix.

Fighting your way out of debt takes time and perseverance. You should do it as quickly as you can, but understand that you’re fighting an uphill battle that might take some time.

The most flexible way to repay credit card debts is by taking out a personal loan, especially since you can choose the loan amount and loan tenure. You will need to exercise discipline, however, in using the cash to repay your credit card bills in full – instead of letting it contribute to your debt. On top of that, you need to commit to the monthly repayments, which are likely significantly more than the minimum payment on a credit card bill.

If all else fails, consider a debt consolidation plan. This is a special personal loan open to Singapore citizens and Permanent Residents who are heavily in debt, especially if they have at least 12 months’ salary’s worth of outstanding debt. On top of that, there are further eligibility conditions to fulfil, such as your income and net assets.

“If your credit card debts are is not that high, you should consider other more viable option and speak to a loan consultant quickly,” said Mr Paul Ho, chief mortgage consultant at iCompareLoan.