Ravi Chandran
With the economy of Singapore struggling in the wake of US-China trade war, debt overload poses an even greater danger than usual
By: Hitesh Khan/
The stresses of life may be without number these days. But your debt is easily quantified. And with the economy of Singapore struggling in the wake of US-China trade war, sizable debt load poses an even greater danger than usual: layoffs are mounting and bonuses are shrinking, but creditors will continue to expect their payments.
The Total Debt Servicing Ration (TDSR) measures all monthly debt obligations, inclusive of the mortgage repayment – that it does not exceed 60% of the borrower’s gross monthly income. That’s one factor mortgage bankers consider when assessing the creditworthiness of a potential borrower.
But it’s not the only way to assess if you are in the debt overload zone.
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Here are five red flags that you may be in over your head:
1. You have fewer dollars on tap: Your disposable income – what you have left after paying bills – drops. That’s likely to be the case if you occasionally dip into savings to cover shortfalls in your current account, or must take a loan against your retirement savings. It comes down to, Are you able to save? Are you saving for that future wedding, your coming retirement, your kids’ education? If not, something’s not right.
2. You max out: You max out your credit cards soon after paying off longstanding balances. In today’s interest-rate environment, it’s often smart to transfer your balance from a high-interest credit card to one with a lower rate, or to consolidate your debt and pay it off with a low-interest home equity loan. But it’s not smart to celebrate being debt-free by charging your way into hock all over again.
3. You stick to the minimum: You make only minimum payments on your debt. Say you’ve got a $3,000 balance on your credit card. If you just pay a 2 percent minimum on your remaining balance every month and you’re charged 17.99 percent interest, it will take you 37 years to pay off the whole amount. At the end of those 37 years, you will have paid nearly $11,000. Even at a more reasonable rate – say 14.98 percent, full repayment would take 26 years for a total of $7,440.
4. You’re unprepared for the unexpected: You can’t maintain an emergency fund. An emergency fund – three months to six months of expenses (more if you are worried you might be laid off) – is intended to bail you out when your toilet bowl leaks, a loved one needing hospitalisation or you face some other unexpected, costly situation. Debt payments should not get in the way of keeping one.
5. You toss and turn: Your comfort level is a less tangible but no less important sign that you’re too deep in debt. Put simply, can you sleep at night or do you stay up worrying about what you owe?
If you are facing debt overload, what you can do now
The first step toward taming your debt is recognising that you have more than you’d like. People who don’t want to quantify where they’re at are in the danger zone.
Note every time you charge up a storm or knowingly forfeit your savings in favor of a more immediate pleasure. Count how many times you make a purchase and just assume you’ll find a way to pay for it. And start asking yourself why you’re really buying something. So much spending is done to impress other people.
Then record everything you spend for a month. Clothes and food are the big shockers. If you and your spouse each spend $5 a day on coffee and breakfast, that’s $200 a month, not counting weekends. That’s money that might be better spent paying off high-interest debt. Next, convert from credit to cash. You’re less likely to hand over $130 in cash than to charge the same amount.
When faced with debt overload, you can also commit to paying off your debt systematically. Allocate a fixed amount each month to the task, and have it withdrawn automatically from your checking account, if possible. Your priority should be to pay off your high-interest rate debt first, while continuing to make at least the minimum payments on your other bills.
Lastly, you can also consider licensed moneylender. But before you approach a licensed money lender, consider other alternatives, such as the various financial assistance schemes offered by various Government agencies. As you are legally obliged to fulfil any loan contract you enter into with a licensed moneylender, consider whether you are able to abide by the contractual terms, bearing in mind your income and financial obligations.
How to Secure Personal Loans Quickly
If you are in the debt overload zone and are searching for personal loans to ease your crunch, the loan consultants at iCompareLoan can set you up on a path that can get you a it in a quick and seamless manner. Our loan consultants have close links with the best lenders in town and can help you compare various loans and settle for a package that best suits your needs. Find out money saving tips here.
Our Affordability Tools help you make better property buying decisions. iCompareLoan Calculators help you ascertain the fair value of a property and find properties below market value in Singapore.
If you are looking for a new home loan or to refinance, our Mortgage brokers can help you get everything right from calculating mortgage repayment, comparing interest rates all through to securing the best home loans in Singapore. And the good thing is that all our services are free of charge. So it’s all worth it to secure a loan through us for your business expansion needs.
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