25/08/2021
Too Much Debt and Strategies to Pay Off Your Debts — Saevr
Your debts can be of various types like home loans, car loans, student loans, credit card loans, etc. Owing a large sum is a serious problem, and it can hold you back from attaining important financial goals like saving for your retirement, the education of your children, etc.
Toxic debts are also known as bad debts. If you use the loan amount to buy depreciating items like electronic gadgets, white goods, etc., then the loan is considered as bad debt. Neither of these items helps you to improve your earning power, nor do they return the value you have invested in acquiring them. So never buy depreciating items with borrowed money. Your credit card loans also fall into this category of debt.
Usually, toxic debts have high-interest rates. To make the repayment of these loans on time, you may cut back on some of your investments or other spending's. A higher interest burden may diminish your ability to save or borrow for future expenses. A sudden change in circumstances like job loss or pay cuts may make the situation even worse. A defaulted payment can diminish your future borrowing power, as its impact may last in your credit score for many years.
Strategies to Pay Off Your Debts.
The first strategy is to concentrate on paying off the highest interest rate, non-deductible loan you have, and simultaneously paying the minimum on other debts. After paying it off, you can apply the same strategy to the next highest one and so on. But the flip-side of this strategy is that your highest interest rate loan may take a long time to pay off. So, you may feel exhausted and discouraged in between and may abandon the strategy.
The next strategy is paying off the one with the least balance. As the amount is small, you’ll be able to quickly repay the entire amount and stay motivated. The drawback of this strategy is that instead of concentrating on the interest rate, you emphasize on the balance amount. Hence, more interest may accumulate in your high-interest rate debts, increasing your debt burden.
The third strategy is to improve your credit score by reducing the CUR ( Credit Utilization Ratio). A CUR of 30% or more can impact your credit score negatively. If that is your case, pay off the credit card debt first rather than repay the low balance or high-interest rate debts first.
DebtsFormula Singapore will share with you the journey equipped with several alternative solutions available in Singapore planning towards your Debt's Independence & Freedom.
Being debt-free could provide more flexibility to spend time taking care of other things that matter, like family, hobbies, or travel.
The most important now is for you to take the step forward and start the process.
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