The world of personal finance can be challenging to manage. Many individuals find themselves going into debt due to poor financial management and decisions. In Singapore, with the high cost of living, it can be even more difficult to navigate one’s personal finances. 

Debtox aims to explore the different kinds of debt prevalent in Singapore, and through doing so, help individuals understand how they can manage their debt and work towards freedom from debt. 

What Are The Different Types Of Debt In Singapore?

In Singapore, there are many reasons why someone might find themselves in debt. In this guide, we will take a look at the most common reasons someone might accumulate debt. We have listed some primary sources of debt in Singapore. 

1. Credit Card Debt

Credit cards are one of the most common sources of unsecured debt in Singapore. The convenience of a credit card makes it an easy option for many. However, high interest rates can lead to quickly accumulating debt if not managed properly. 

While a credit card can be beneficial to one’s credit score if managed efficiently, it can be easy to fall into a cycle of debt where many find themselves only able to pay the minimum repayment. As mentioned, the high interest rates mean that while you are making regular repayments, your principal will not reduce. At this point, you may also find yourself taking out additional loans in order to keep up with the repayments. 

2. Personal Loans

Another incredibly common source of debt in Singapore are loans. In Singapore, there are various loans available to individuals. These include personal loans, bank personal loans, personal and payday loans from licensed money lenders, and overdraft loans - which are tagged to your credit limit and typically have a higher interest rate. 

Additionally, renovation loans are also a common source of debt in Singapore for many individuals and couples. A renovation loan is what is known as non-exempt debt. Much like an education loan, non-exempt debt refers to unavoidable debt. Loans such as education and renovation loans also do not come under the Monetary Authority of Singapore’s (MAS) ruling where a loan cannot be more than 12 times the borrower’s salary. 

All of these loans act as a quick source of funds. However, much like credit cards, they typically come with higher interest rates. While these loans offer versatility and ease, it is on the borrower to ensure that they manage their loans wisely and avoid overborrowing. 

3. Housing Loans

Housing loans are often viewed as a long-term investment. However, with the increasing cost of property in Singapore, they can lead to sizable amounts of debt and act as a significant financial burden. It is crucial that borrowers understand the mortgage payments and are able to cope with them in order to avoid financial stress and strain. 

4. Car Loans

Owning a vehicle in Singapore can be a costly affair with Certificate of Entitlement (COE) being implemented to manage and regulate vehicle regulation. Many individuals may turn to car loans, especially those with families. Borrowers should bear in mind the impact that a car loan can have on their overall financial situation and debt-to-income ratio. 

If you find yourself struggling to make ends meet without the aid of external loans, a car loan could lead to you accumulating more debt than necessary. 

5. Education Loans

Education loans aid many individuals in their academic pursuits. However, many graduates find themselves facing substantial financial difficulties when it comes to their repayment obligations. 

While an education loan may be a necessity for some when it comes to furthering their studies, it is important to effectively manage their repayments to avoid financial stress and potential debt. 

How Can I Achieve Freedom From Debt In Singapore?

Now that we have given you some insight into the various types of debt in Singapore, our team at Debtox would like to help you understand how you can achieve freedom from debt despite the rising cost of living. With responsible financial decisions, it is possible to achieve financial stability. 

1. Create a Detailed Budget

The key to attaining freedom from debt is learning how to live within your means as opposed to relying on credit cards or loans. While this might mean that you have to cut back on certain areas, it also means that in the long run, you will not find yourself with accumulated debt. 

By assessing your current financial situation and drawing out a detailed budget, you can also make room for savings which will also put you on the path to financial freedom and stability. 

2. Prioritise High-Interest Debts

If you are in a position where you have already accrued debt, it is important to sit down and take a look at your varying interest rates. The credit cards or loans with the highest interest rates should be prioritised as this will minimise the amount you need to pay over time. 

Once you have managed to pay off the sources of high interest, you can switch your focus to those with a lower interest rate as you work your way towards freedom from debt. 

3. Consolidate Debts

Another way in which you can work to clear accumulated debt is to consider consolidating your debt through Debt Consolidation Plans (DCPs). Debt Consolidation Plan in Singapore allows debtors to combine multiple unsecured sources of debt into a single loan which will be paid back to creditors through a structured fixed monthly repayment. 

4. Build An Emergency Fund

An important step to avoiding situations where you might find yourself needing to rely on a loan or credit card to ensure that you have built an emergency fund that can be used to support you in times of unexpected hardship. For example, if you find yourself ill and unable to work or unemployed for other reasons, your emergency fund can be tapped into for the time being. 

Individuals should aim to have roughly 3 to 6 months' worth of their salary in one’s emergency fund. Matching your emergency fund with your monthly salary allows you to keep up with your lifestyle while you look for your next place of employment. 

5. Explore Debt Repayment Schemes (DRSs)

Debt Repayment Scheme (DRS) in Singapore provides debtors with a structured and affordable approach to paying off their accrued debt. As a government initiative introduced to help prevent individuals from going bankrupt, it is designed to make monthly repayments more affordable by extending the tenure and freezing interest rates. 

With these two primary benefits in place, debtors are able to repay what they owe while still being able to afford the necessities for themselves and their families. Our Debt Consultants at Debtox will be more than happy to help you with understanding the different options available to you when it comes to getting on your journey to freedom from debt. 

Conclusion…

We hope that this guide has aided you in understanding the different types of debt in Singapore and how you can avoid and clear any existing debt that you may have. We recommend adopting proactive measures, such as budgeting, prioritising high-interest repayments, and exploring the various debt management options available in Singapore. 

It is important to remember that financial freedom is not just about eliminating debt but building a secure and sustainable financial foundation for your future. Drop us a message and get in touch with any of our Debt Consultants who will be happy to assist you in making your first step towards freedom from debt.