Debt can be like quicksand — easy to get into but hard to get out of. Bigger loans with longer tenures can be particularly challenging to pay off, as the interest charged could be as much as the cost of debt. By extending your loan repayment period, you’ll end up paying even more interest than you would have for a shorter tenure.
As a longer loan takes more money, effort, and time to manage, it may even compromise some of your financial goals. On the contrary, paying off your principal amount as soon as possible may reduce the amount of interest paid.
Carrying outstanding debts may also reflect negatively on your credit score. Credit Bureau Singapore (CBS), Singapore’s most comprehensive consumer credit bureau, compiles your credit payment history from all retail banks and major financial institutions and puts them into a credit report. Every individual in Singapore who holds onto an existing credit facility will be given a credit score, which reflects their creditworthiness. A bad score might suggest a financially unfit person, which may cause banks to doubt their repayment capabilities, therefore reducing their chance to obtain new loans in the future.
Have trouble paying off your massive debts?
The first step to paying off your debt is to acknowledge this financial commitment, and actively manage it. If you are struggling to juggle multiple loans, here are some ways that you can seek help.
The Debt Consolidation Plan involves combining all your existing debts into just one repayment account. This consolidation method simplifies your debt repayment process by allowing you to focus on one main debt account, instead of managing multiple accounts each month. It also guards you against missing out on loan repayments, to avoid incurring penalty charges.
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If you find it difficult to commit to your loan repayments due to income constraints, consider applying for the Debt Repayment Scheme. This scheme emphasises rehabilitation by giving you the opportunity to repay your debt within a set timeframe with no interest charge levied. It helps to avoid financial embarrassment or even bankruptcy.
Debt management is an important skill that everyone should master. Do not be afraid to seek external help if you are struggling to pay off your loans. Settling your loan early will greatly improve your quality of life and allow you to focus on your financial goals.
For all financial matters, remember: ‘Before you spend, earn. Before you invest, investigate. Before you retire, save.’
This article is contributed by Credit Bureau Singapore.