In most cases, when individuals start earning money by themselves, they tend to splurge on items they don’t necessarily need.
Thanks to online shopping, it’s also easier nowadays to buy whatever they want, wherever they are. Moreover, payments in installments are easily available (and highly encouraged) for those who don’t wish to pay in full straight away.
If not properly monitored, this may result in a debt spiral, especially if you accumulate debt on a credit card which has a hefty interest rate. Depending on the amount, this may take up to years to pay off (and it’s not easy to buckle down and get to that!)
This is the main reason why it’s important to manage personal finances.
Let’s take a look at some strategies to paying off debt and how you can avoid incurring a larger debt altogether.
Create a Spending Plan A.K.A Budgeting Your Expenditure
As a working individual, it’s important to have an overview of your monthly income and expenses. By looking at your monthly finances, you can determine which ones to prioritise, and which to cut off. Doing this eventually helps you to work your way out of debt, or to avoid it!
You’ll also know if you have enough money for your monthly bills and necessities. It’s easier to track your finances this way, as most payments and bills are due monthly, too, anyway.
You can begin by adding up your monthly expenses, and subtract that from your total monthly income. If you find that you’re spending more than you earn, review your expenses once again and figure out which areas you can reduce your spending on. If there’s some left, you can use that remaining money to pay off your debt, or to put away in your savings account.
There are budget apps available to help you keep track of your spending, like Mint. You can also use Google sheets or Microsoft Excel, whichever you prefer.
Avoid Creating More Debt and Drop Expensive Habits
You don’t want your debt to keep increasing. So as much as possible, reduce any temptation to spend on unnecessary items.
For that reason, if you find yourself spending a lot more, you may want to put your credit card away in the meantime. You may also want to let go of some spending habits that you’ve gotten used to.
Make small yet effective changes, like refraining from getting your daily cold brew, or cutting back on shopping for new clothes or accessories. You may also want to start cooking at home, instead of eating out all the time.
Prioritise Debts to Pay Off
While paying the minimum amount monthly works great, it takes a longer time to see progress as opposed to prioritising to pay off one debt at a time. Typically, the best strategy would be to pay off debt that has the highest interest rate (if this is a credit card debt) as it costs the most money the longer you put off repaying it.
However, if that’s something that you can’t afford to do just yet, you can always begin by prioritising the one with the lowest balance first. You may continue paying the minimum amount on all your other debts each month, but commit to making big payments on the debt that you want to prioritise.
You’ll eventually notice some progress when you begin to make big payments on just one account each month. Once that debt is cleared off, you can move on to paying off the next one on your list.
Negotiate or Adjust Other Monthly Bills
When analysing your situation involving money and debt, it’s always best to look at your monthly bills as you may find some elbow room in them.
You can begin by calling your local credit card provider and asking for low-interest rates. It’s actually common to ask for low-interest rates on credit cards. They may be willing to do this for you especially if you have a good history of paying on time.
You can also try to negotiate for lower prices on services such as your internet provider. Alternatively, you may want to consider switching providers if other competitors offer more competitive prices.
Remember, the worst that can happen to you is getting no for an answer, so it’s still worth giving it a shot!
Look For Ways to Earn More
There are many ways for you to increase your monthly income in order to reduce your debts quickly. Nearly everyone can use their talents or skills to offer as a service online, such as copywriting, graphic design, or even virtual assistance! You can find part-time jobs on freelancing websites such as Upwork.
You may also want to start selling things you own that you don’t necessarily need, using platforms such as Facebook Marketplace or Carousell. You can also consider working extra hours so you can bring in additional income.
Talk to a professional
If you’re not sure about how to reduce your debt, consider talking to a financial advisor. They can help you analyse your expenses, develop a plan, and reduce interest costs.
Get in touch with us and we’ll help you find a financial advisor in Singapore to help you get out of your debt faster and help you kick start your personal financial planning this 2021!
Written in collaboration with our financial advisory partners at Virtus Associates.