With stricter social distancing measures implemented as part of the circuit breaker, the impact of COVID-19 on our economy will last for months to come. Here’s why reducing debt is so important despite all that’s happening around us.
With COVID-19 hitting many sectors of our economy, citizens have inevitably suffered from the repercussions. This includes wage cuts, no pay leave or worse, unemployment. While the government has introduced measures to help Singaporeans tide through this difficult time, we should also take it upon ourselves to take our finances more seriously.
One area to take more seriously? Debt. It is a double-edged sword; some Singaporeans are taking on more debt for investment purposes, but there are also many Singaporeans struggling to meet loan commitments. The Monetary Authority of Singapore (MAS) has since stepped in to provide help for those that are finding it difficult to repay their debts.
Here are some reasons why you should clear your credit card debt amidst this global pandemic.
Prevent rapid snowballing of debt
Credit cards have notoriously high interest rates, ranging from 25% to 28% p.a.
By comparison, a HDB loan has an interest rate of 2.6% p.a., and a personal loan stands at 3.5% to 10.8% p.a. A late payment could also result in a late payment fee of about $100, enough for a trip to the supermarket to restock your fridge.
Failing to pay off your credit card bill could cause your credit card debt to snowball; a $3,000 credit card bill today could easily become more than $3,750 in a year. This is an additional $750 you are forking out simply because you have failed to pay your credit card bill.
Yes, that would be 7 trips to the supermarket if you are itching for a breather outside the stay home mandate.
Protect your credit score
Your credit score affects your ability to be approved for financial products such as credit cards and various types of loans. A good credit score starts with having low or no debt. A growing credit card debt, late payments or defaulting on your account would have an adverse impact on your credit score.
Understandably, many of us are going through a rough financial patch as a result of COVID-19. However, letting your credit score deteriorate at this time could have significant consequences in the future, especially when you choose to apply for products to tide you over other crisis down the road.
A bad credit score can also make or break your employment chances, as there are employers who look at your credit score when doing a background check. This is the time to protect your credit score — along with your wallet — from additional interest rate charges.
One less thing off your plate of worries
Countries all over the world are still grappling with the outbreak of COVID-19 — Singapore included. Unemployment is on the rise, wages are being cut, companies are bleeding cash (some have already folded), the stock market has fallen and confirmed cases of COVID-19 continue to rise at a worrying pace.
For the sake of our mental health, why shouldn’t we at least take credit card debt — something we can control — off the plate?
With stricter circuit breaker measures in full effect, there have been unprecedented changes to our lifestyles, like how most of us are now forced to stay home (unless our job is in the essential services) and wonder aloud within the four walls of our HDB bedrooms as to when this dystopian reality will end.
This certainly does not bode well for our psyche: experts have highlighted that COVID-19 could take a toll on the mental health of Singaporeans. There is greater anxiety, stress and even grief within our society, and this could very well have a ripple effect on how we manage our finances. Having unpaid credit card debt paid might just help you sleep better at night.
If not for yourself, do it for your loved ones
We might be living in extraordinarily unextraordinary times, but home confinement can also have its positives. We now have the time to do things we always wanted to do, be it bingeing Money Heist on Netflix, working on a 5,000 piece jigsaw puzzle or trying to become the next Gordon Ramsay of Tampines.
Most of all, we can also take the time to do a health check on loved ones staying together with us. Financial mishaps is one of the biggest strainers of personal relationships and this is a time, more than ever, to be seeking solace in our own support system, not let credit card debt sour it.
Speaking of health checks and family, don’t forget to do the same for your finances, starting by ensuring a sufficient emergency fund. They could serve as your accountability buddies to help you achieve small wins such as cancelling unused credit cards, or cultivating a habit to pay off credit card bills early.
Things you can do to pay off your credit card debt fast
1. Pay off your credit card bill in full
Since credit cards are one of the financial products with the highest interest rates, paying these bills first to reduce any extra charges incurred in interest should be a priority.
While your credit card bill comes with the option to pay just the minimum amount, what you should really consider is to pay off in full before the payment due date.
Paying just the minimum amount would cause mounting interest charges on the remaining amount. For example, a $10,000 balance on your credit card that charges 25.9% in interest with a monthly repayment of $300 would incur a whopping $1,450 in total interest charges for the year.
2. Consolidate your debt into one loan
If you have too many overdue credit card bills, you can opt to consolidate your existing debt into a single loan. This can be done through a balance transfer. A balance transfer allows you to transfer all your outstanding balances to a low or 0% interest rate loan. For example, the Standard Chartered Credit Card Funds Transfer offers a 0% interest rate loan for 6 months with a processing fee of 1.5% of approved loan amount.
Alternatively, you could take a personal loan at a much lower interest rate. For example, the Standard Chartered CashOne Personal Loan offers flat interest rates from as low as 3.88% p.a. (EIR 8.04% p.a.). You will also enjoy 50% cashback on your first month's instalment and $20 cashback when you apply via MyInfo. You can compare personal loans based on your loan amount and tenure below.
3. Minimise the number of credit cards you have
With every credit card in your wallet comes another bill to pay, and another credit card statement to keep track of. Try reducing the number of credit cards in your wallet to 2 that maximises gains on your existing lifestyle, such as a good cashback rate or miles earn rate.
4. Choose credit cards from banks you are already banking with
You would be halving the hassle by making payments within the same bank. For example, if you have a Standard Chartered savings account, you can get the Standard Chartered Unlimited or Standard Chartered Spree credit card.
Within the bank’s internet banking, there are options for you to pay off the outstanding amount on your credit card immediately by deducting the amount from your savings account. This reduces the inertia to pay off your bill when the process is so seamless.
Read these next:
Credit Card Housekeeping: 3 Reasons To Cancel Unused Credit Cards
3 Reasons Why Cash is King in Uncertain Times Like COVID-19
5 Ways to Cope With Financial Setbacks Hitting Singaporeans Hard Amid COVID-19
How to Get a Personal Loan in Singapore With a Bad Credit Score
4 Ways to Pay Off Credit Card Debt in Singapore