Credit card debt – how to get out of it in 5 easy steps

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It’s a taboo to admit that you are in credit card debts, so, you are probably keeping it a secret

Credit card debt
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You’re probably keeping it a secret. It’s taboo to admit you’re mired in credit card debts, especially when everyone else around you is so intent on keeping up the appearance of prosperity.

However this can also mean you’re forced to suffer in silence as you secretly struggle to pay off high interest debt that just won’t go away, all while appearing to maintain your lifestyle as per normal.

That can’t be easy. Here are five tips to make the road to being debt-free soon.

  1. Calculate how long it would take you to pay off your debt completely

People who get mired in credit card debts often find themselves there due to carelessness, at least at the start. They don’t bother to calculate how much they would need to pay off each month and for how long in order to be completely debt-free. As a result, they end up repaying too little each month, and the debt balloons. By the time they realise they’re in trouble, the debt has swelled to an amount that’s so intimidating that they lose their sense of control.

Whether you’re in four, five or even six figures of debt, take a deep breath, sit down and do the math. Figure out how long it’d take you to pay off your debt in full if you paid $500 a month. Then do the math for a repayment rate of $1,000 a month, $1,500 a month and so on.
When you know exactly how much you need to pay each month in order to be debt-free 6, 12 or 18 months from now, you can set a goal to put aside a certain amount each month instead of blindly paying ‘whatever you can afford’.

  1. Scale back your lifestyle drastically

Now that you know exactly when you can expect to be debt-free, you’ll see that it’s not the end of the world—that is, if you actually do manage to stick to your repayment plan. You’ll also see that the faster you pay off your debt, the shorter your time of ‘suffering’ will be. Think of it like bootcamp—painful and intense, but short.

Take the previous scenario we discussed, for instance. To pay off $20,000 of debt in six months, you’d have to set aside $4,000 every month. That might seem like a huge amount to Singaporeans earning the median income. But on the bright side, you’ll only have to live like a monk for six months. On the other hand, if you choose to pay only $2,000 a month, you’ll need to spend a whole year worrying.

Of course, how drastically you can cut back really depends on your circumstances. If you’ve got an infant at home to look after, don’t go replacing baby food with blended instant noodles to pay off your credit card debt!

As a general rule of thumb, you should cut back as much as you humanly can without putting you and your family in danger. That means no luxuries, no shopping except for what’s absolutely necessary, and eating at home as much as you possibly can.

  1. Find ways to raise your income

So you’ve worked out how much to repay each month, and are ready to live frugally for the next few months/years until your debt is repaid. But what happens if your income just doesn’t permit you to repay a meaningful amount each month? Then you might have to find ways to boost your monthly income until your debt is gone.

Yes, we all know Singaporeans work very long hours, and trying to fit in a second or third job isn’t sustainable for most people. But remember, the faster you repay your debt, the faster you can stop. So depending on your stamina and working hours, try your best to discover any side hustle which may improve your income capabilities

  1. Don’t forget that credit counselling is an option

Even if you don’t want to tell a single person in your life about your credit card debts problem, don’t discount the possibility of seeking credit counselling.

The folks at Credit Counselling Singapore, a registered charity, will keep your information strictly confidential so no one will ever find out. (Although, when you are finally free from debt, you might want to consider sharing your story with others who could use some help.)
They can help you come up with a debt repayment plan, consolidate your debt so you pay lower interest, and teach you how to downsize your lifestyle. As credit card debts usually incur high interest, they may recommend a personal loan to consolidate the debts so that you can repay the debt at more manageable rates.

  1. Surround yourself with people who will help, not hinder you

Unknowingly, the people around you might be indirectly responsible for your spending habits. So make sure you surround yourself only with those who are supportive and don’t pressure you to spend more than you should during this pandemic period. It could mean distancing yourself temporarily from friends who party only at expensive places or rejecting a few wedding invites.

But on the bright side, you may get to rediscover cheap or free activities with other friends and family members. And trust me, there will be some friends and family members who will be only too happy to support you in your bid to downsize your lifestyle and vanquish your credit card debts. Finding out who these people are could be a blessing in disguise.

Credit card traps are everywhere, credit cards have become an integral part of everyday modern life. Especially in this digital age where contactless and mobile transactions are the way to go, it is uncommon to find a peer without a credit card in his or her wallet.

However, the growing trend of credit cards usage also means that more and more people are susceptible to credit activity.

Want to buy a $15,000 watch but barely have enough sitting in the bank account? No problem, just sign up for the 0% interest 12 months instalment plan on the card and one could easily own the watch.

Eyeing on the dream Europe vacation? Just swipe your card, and you can jet off to your dream holiday.

Before long, you would find your total outstanding balance and interest accumulated on the credit cards snowballing, and you would have a hard time repaying the debt.

The way that one can easily slip into massive amounts of credit card debts is similar to falling into a trap. It is important to manage and prevent accumulation of credit card debts.

Because having a bad mark regarding poor payment or default would significantly impact your credit score. Also, it affects your bigger financial goals such as owning your dream house. For example, a default record stays on your credit report for three years even after a full repayment!

Written by Ravi Chandran

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