2 Strategies To Consider When Clearing Crushing Debt In Singapore

Alevin Chan

Alevin Chan

Last updated 23 December, 2020

Get yourself back in the black by attacking your greatest enemy within debt: interest rates.


At some point or another, everyone has some debt. This is common in an affluent, vibrant society such as ours, where participation in consumerism is widespread. 

When left unchecked, debt can be dangerous, even ruinous. However, as long as you properly manage your debt, bringing your borrowings under control is simply a matter of applying the right strategy. 

So if you’ve been struggling with debt, here are two strategies that you can use to quickly and efficiently get out of debt in Singapore.

Compounding interest is a slippery slope

But before we get into it, let’s talk about why perfectly intelligent and reasonable individuals can find themselves in a situation where they try to fill in a bottomless hole. 

Using a credit card debt as an example, despite making regular payments, you might find that debt continues to pile up. You’ve hardly made a dent in that mountain of debt. 

What’s going on?

Credit card statement, interest at 28.8% per annum  Amount owed Finance charges Statement total Payment
Jan 2020  $4,668 $112 $4,780 $150
($112 to finance charges, $38 to amount owed)
Feb 2020 $4,630 $111.12 $4,741.12 $200
($111.12 to finance charges, $88.88 to amount owed 
Mar 2020 $4541.12 $108.98 $4650.10 NA

Between Jan and Mar, you’ve paid a total of $350. Yet, your Statement Totals have only reduced by $130. Why?

Well, payments made are first used to settle finance charges and other fees (such as late charges, etc). What’s remaining is then applied to the amount owed. So, even though we paid $150 in Jan, $112 went to cover the finance charges for the month. Only $38 was paid toward the debt. 

Then, in Feb, interest is again charged on the total amount owed, which brings up the amount of debt again, though, not as high as before. 

This time, we made a bigger payment of $200. However, $111.12 went to finance charges, and only $88.88 was paid towards our debt. 

The entire cycle repeats until everything is paid off. 

This is why paying off your credit card debt (or any other, for the matter) can feel like you’re stuck running in place, with no end in sight.  

Help yourself to better financial shape in the new norm, with SingSaver's all-new Ultimate Savings Guide! Got your free copy yet?

Strategy #1: Increase your debt payments 

Now that we have a grasp of the three-steps-forward, two-steps-back nature of debt payment, we can better formulate a plan to bring it under control. 

Broadly speaking, we can adopt two strategies, and the first one is to increase debt payment. 

From the table above, by increasing our payment from $150 in Jan to $200 in Feb, we have reduced our debt by an extra $50. This also reduced the interest charges (however slightly) for Mar.

This means that by increasing your debt payments, you’ll reduce your interest fees month by month, while making greater dents in your total owed, which helps you get out of debt faster. 

How to increase your debt payments

There are several methods for increasing your debt payment, including:

  • Reining in your discretionary spending
  • Temporarily reducing your savings
  • Increasing your income
  • Setting up automatic payments

Reining in your discretionary spending 

One good way to increase your debt repayment is to prioritise paying off debt over discretionary spending. You’ll need to make some lifestyle adjustments and give up some enjoyment, but tell yourself it’s only temporary. Once you clear off your debt, you’ll have the means to indulge again. 

Temporarily reducing your savings

Because the interest on what you owe is likely to be many times higher than the interest you can earn on your savings, it’s only sensible to put paying down debt above saving money. Whenever you can, consider diverting some of your regular savings to paying off your debt, which puts you in a better financial position. However, be sure not to drain your savings completely, in case you need liquidity to meet emergency needs. 

Increasing your income

If your current budget leaves hardly any room to increase debt payments, you should look at increasing your income, by building a side gig via freelance work. 

Building a second income to pay off debt doesn’t need to be a hardship. Just take up what you feel is most comfortable for you, given the time you can spare to earn those extra bucks. Alternatively, think about tapping into these unexpected money sources you might have forgotten about.

Setting up automatic payments

Sometimes it’s simply a matter of choosing to pay more than that the minimum payment that’s stated on our credit card bills. Rather than let yourself be influenced into paying a lower amount, set an automatic payment arrangement to make larger payments to help you clear debt faster. 

Strategy #2: Slash your interest charges

You’ve seen how interest charges can inflate your debt the longer you delay. Hence, the other strategy for tackling debt is to lower your interest charges. 

Fortunately, there are a number of ways to reduce your debt interest rates in Singapore, with financial tools such as:

  • Personal loans
  • Debt consolidation plans
  • Balance transfers

Personal loans

In comparison to credit cards, personal loans often offer a much lower interest rate (approx. 7 - 10% per annum). This is a good thing, because the lower the interest on your debt, the less you have to pay overall. 

Personal loans are also straightforward and flexible. You can choose the amount and duration of loan that best fits your budget. 

Take for example the Standard CashOne Personal Loan, now available at an interest rate of 3.88% per annum (EIR 7.67%) for up to 5 years. 

Let’s see how much this personal loan can save us in interest charges.

  Amount owed Payment period Payment per month Total interest paid
Credit Card @ 28.8% per annum $5,000 5 years $158.10 $4,486.07*
Standard CashOne Personal Loan @ 3.88% per annum $5,000 5 years $100 $1,000^
Interest saved       $3,486.07

Source: *MoneySense Debt Calculator, ^SingSaver Personal Loan Comparison tool

As you can see, using a personal loan to pay off your debt can save you a significant amount in interest charges. Not only that, you will also have an easier time paying off your debt with lower monthly payments.

Debt consolidation plans

There’s another financial tool we can use to reduce our interest charges, and this will be especially useful to those who are heavily indebted. Consider applying for a Debt Consolidation Plan (DCP) if you are struggling to keep up with your debt repayments. 

A DCP involves the transfer of all your debts to one singular financial institute, which will pay off all your outstanding unsecured financial obligations on your behalf. Then, you will enter a repayment agreement with this financial institute to repay your total debt, but at much lower interest rates than before. 

In most cases, a DCP is a last-ditch effort to get things under control, and as such you will have to accept restrictions on your financial freedoms while you’re under the programme. However, these restrictions are lifted as you achieve certain milestones in your debt repayment journey.

Balance transfers 

A balance transfer is a type of short-term loan that temporarily reduces your interest payments to zero, letting you focus on paying off your debt without having to deal with compounding interest charges. 

This is because balance transfers come with a 0% interest period (typically 3 to 12 months). As long as you repay your entire balance transfer within this interest-free period, you do not have to pay any interest charges. 

Read our detailed guide on balance transfers to learn how to use one to manage your debt.

Read these next:
4 Common Money Mistakes To Avoid During COVID-19 Circuit Breaker
Top 6 Myths About Personal Loans, Busted
Best Bank Loans You Can Apply For Under Each Loan Type In Singapore (2020)
4 Ways to Pay Off Credit Card Debt in Singapore
How to Get a Personal Loan in Singapore With a Bad Credit Score

An ex-Financial Planner with a curiosity about what makes people tick, Alevin’s mission is to help readers understand the psychology of money. He’s also on an ongoing quest to optimise happiness and enjoyment in his life.


Use a personal loan to consolidate your outstanding debt at a lower interest rate!

Sign up for our newsletter for financial tips, tricks and exclusive information that can be personalised to your preferences!