7 Ways to Tackle Credit Card Debt

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One of the first things experts recommend if you want to build wealth is to eliminate all forms of bad debt.

Credit card debt is one of the worst forms of bad debt as it typically carries extremely high interest rates.

This debt can grow exponentially, and you have the potential to owe multiple times the original borrowed amount within just a few years.

Your credit rating is also affected which has negative knock on consequences.

So if you have any bad debt, prioritize your finances to pay it off as quickly as possible.

Here are 7 effective strategies to tackle credit card debts.

This article was written by a Financial Horse Contributor.

Rise in Credit Card Debt in Singapore

According to the latest figures, credit card debt is rising in Singapore.

Besides credit card debt, car loans have also contributed to the rise in personal loans.

According to the general manager of Credit Counselling Singapore (CCS), many of those who sought help tend to have accumulated their debts over months or years.

The typical distressed borrower uses his credit card to pay bills or buy stuff, and because he does not make payments in full, the outstanding balance is rolled over.

Every month, he spends some more and adds to his outstanding balance. 

This outstanding balance incurs interest rate charges of between 25.9% and 27.9% – a shocking figure.

In 2023, the average debt size of the individuals who sought CCS’ help was about $95,409, while the median debt size was $51,609.

The MAS has safeguards in place. MAS has placed a limit on the amount of unsecured credit that can be granted to those earning less than $120,000 a year.

The balance-to-income ratio has been set at 12 times monthly income since 2019.

1. Target High-Interest Debt First (Avalanche Method)

The first thing to do is to organize your debt – find out which has the highest interest rate and tackle it.

What is the avalanche method?

Focus on paying off the credit card with the highest interest rate while making minimum payments on other cards.

This approach saves the most money in interest charges over time.

2. Use the Snowball Method

Once you knock off the highest interest rate, you can also tackle the rest with the snowball method.

Pay off your smallest credit card balance first while maintaining minimum payments on other cards.

Once the smallest debt is cleared, tackle the next smallest balance.

This method provides psychological wins that help maintain motivation.

3. Get Help

If you are simply overwhelmed and dont know where to start, get help.

Credit Counselling Singapore (CCS) is an independent, non-profit, Social Service Agency. CCS is the only organisation recognised by The Association of Banks in Singapore (ABS).

CCS helps people manage credit card debt through:

  • Free information talks on debt management
  • One-on-one credit counselling sessions
  • Debt Management Programme (DMP) for those with unsecured debts of $10,000 or more

Another option is the Debt Advisory Centre (DAC).

The DAC is a one-stop centre that assists individuals facing debt problems. It is support by AMP Singapore, which is a non-profit organisation serving the Muslim community. 

4. Consolidate Your Debt

Consider a Debt Consolidation Plan (DCP).

This option allows you to:

  • Consolidate all unsecured debts with one participating bank
  • Get lower interest rates
  • Qualify if your total unsecured debts exceed 12 times your monthly income

The process involves:

  • Choosing one participating bank to consolidate your debts
  • The bank pays off your existing debts with other institutions
  • You make regular payments to just one bank at a lower interest rate
  • You receive a revolving credit facility limited to one time your monthly income for daily expenses

5. Pay More Than the Minimum

When tackling credit card debt, you must be focused about it.

If you just make the minimum required payment and leave it rolling, this will put you into a serious hole over time.

Get serious about paying off debt.

Even small additional amounts can significantly reduce your repayment timeline.

Understand the long-term consequences of bad debt, and make it a priority to get it down.

6. Negotiate With Creditors

Contact your credit card companies and negotiate:

  • Lower interest rates
  • Waived annual fees
  • Removal of late fees
  • Modified payment plans

Banks will want to help you pay off your debt. The first step is to contact them and make a plan.

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7. Change your Spending Patterns for Good

If you have credit card debt, it is important to rehaul your approach to personal finances.

It is time to set a strict budget and stick to it.

Review your monthly spending and identify areas to cut back. Every dollar counts.

It is time to be strict with yourself and channel any additional savings towards debt repayment.

General Manager of CCS observed that many forget what they spend their money on.

“Sometimes people may think they owe money because of family responsibilities. If you look at the numbers that they have chalked up, it may not be because of their family. There could be other reasons, which he himself may not remember or he may not be comfortable to share.”

In some instances, distressed borrowers could have had a promotion or pay increment, which leads them to think they can indulge a bit, she added.

Consider using cash for purchases to prevent overspending. If you do this for a couple of months, you can rebuild good spending habits.

Have you had credit card debt and overcome it? Share your advice in the comments below!

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