Reducing Debt

Debt Management

What is it?

Pay off any debt you take on to speculate in market instruments (equities, crypto, corporate bonds, or other instruments).

Pay off as much non-mortgage debt as possible, starting from the highest interest first. Include Buy Now Pay Later debt.

Consider approaching a bank for a debt consolidation plan (combining multiple debts into one) if unsecured debt exceeds 12x monthly income.

If there are significant pre-payment penalties, e.g., the whole interest is charged upfront, put the savings aside into a separate account first.

Don’t pay off mortgage debt in advance, unless there’s surplus cash (above and beyond the emergency fund) that we are confident we will not need.

Borrowing to invest in markets (including trading on margin) is highly risky and can bankrupt us. It should be avoided, unless we have a lot of excess cash to cover the whole borrowing even if the investments go to zero.

Paying high interest rates prevents us from saving for the future or spending on purposeful living. With credit cards and revolving credit lines, the high interest is further compounded.

Paying off a mortgage too early means we lock up cash into our property. It is better to invest our savings into liquid instruments for better return and/or more flexibility.

GIRO or transfer as much as able towards paying down a high interest debt once we receive our monthly income.
Use at least 50% of any bonus to pay down non-mortgage debt.

I earn a gross monthly salary of $4,000 and I take home $3,200.

I have a credit card debt of $4,000.
I cut up my credit card and pay down as much of the debt as I can by re-budgeting, tightening my belt and spending less.
I target to pay at least $600/ mth into my credit card, well above the minimum amount.
I save another $200/ mth or so to build up my emergency fund to 3 months’ worth of expenses.
If I can save even more, I will pay down the credit card faster.
After paying off the credit card, I focus on building up my Emergency Fund to 6 months’ worth of expenses, and then a suitable investment.

While “balance transfers” can help reduce interest, we should still pay this down as soon as possible.
Consider credit counselling at Credit Counselling Singapore.