Getting Out of Debt

How can you manage your debt burden better?

Here are some tips to help you along:

1. If you are having problems with your cash flow

Draw up a monthly budget which shows your monthly income and your monthly expenses. Listing out your expenses and income will help you to allocate your available income clearly and see what expenses can be trimmed. Cut out discretionary spending, like eating out, if you have trouble making ends meet and keeping up with your debt payments.

2. As a general guide, do not allow your monthly debt commitments to exceed 35% of your gross monthly income. In some cases, you should aim for less than 35%.

Review your debts regularly. Avoid multiple sources of credit. It is easier to keep track of repayments when you have fewer credit facilities.

3. Pay every instalment promptly and in full to avoid interest and penalty charges.

If you are unable to make payment on time or in full, inform your lender and ask for help.

4. Increase your regular repayments or make lump sum repayments

If you have some extra money you can spare, ask your lender if you can increase the repayment amounts, so that you can pay off your debt more quickly or make a lump sum repayment of your loan. But do check if there are any penalty charges or if you need to give your lender advance notice before increasing your regular payments.

5. Pay off the debt with the highest interest charge first

As credit cards generally charge higher interest rates, it is best to pay the bills in full each month. If you have difficulty paying your credit card bill in full, then pay as much as you can. At the same time, cut back on your credit card spending. The faster you reduce your outstanding balance, the less interest you will have to pay.

If you have multiple debts, consider refinancing or consolidating your debts by transferring all the outstanding balances to a package offering a lower rate of interest. Before you do that, however, make sure you find out whether the lower rates apply for a limited period only. You should also find out what other terms and conditions may apply (e.g. fees and charges, fixed or flexible monthly repayment amounts).

Worksheet to prioritise your debt payment

In the table below, list all the lenders and persons that you owe money to. Include car loans, home loans, personal loans, outstanding credit card payments, instalment purchase plans, hire purchases, and any bills that are past due. Indicate the total amount owed (including all interest and late payment charges), if the debt is secured and whether any legal action has been taken. Note the monthly payment amount, when the payment is due, and when you made the last payment. Finally, prioritise the repayment of the debts. As a general rule, pay off the debt with the highest interest due first, e.g. credit card debt. Next pay off debts with short grace periods before the debt is rolled over and interest and late payment fees are imposed.


Lender Total Amount Owed Interest Payable Security Legal action against you? Monthly payment amount ($) Payment due date Last payment ($) Priority for repayment

What happens when you cannot pay?

Contact your lender immediately if you find you cannot keep up with repayments. Your lender may be able to help you restructure the loan.

If you fail to keep up with repayments, your credit repayment record will be adversely affected. Your credit repayment record forms part of your credit report which is used by lenders to decide whether to lend you money.

A report that shows defaults or late payments - even 30 days late - might lower your chances of getting a loan in the future or require you to pay a higher interest rate for a loan. Do protect your credit record and avoid taking out loans where you can, especially if it is for items you do not need.

When you default on your loan repayments, the lender will take increasingly severe measures if you ignore its attempt to contact you for repayment. The following are some of the actions they can take at each successive stage.

Reminder letter and call To ask for payment and find out your plans to repay
Formal letter The letter of demand will state the lender’s intention to take legal action if you fail to pay the outstanding debt, usually seven days from the date of the letter.
Legal notice of demand Lawyers representing the lender will ask for repayment within seven days with this legal document.
Writ of Summons The writ, issued by a court of law, requires you to attend court on a certain date to answer the lender’s claim for payment. If the court finds that you owe the amount claimed, your debt becomes a judgment debt. The lender can now take legal measures to get you to pay up, including starting bankruptcy proceedings against you.

So do not avoid calls or letters from your lender. You should talk to them as soon as possible. Remain cooperative and contactable. If you are co-operative, your lender is more likely to help you restructure your payment timetable. Also, never borrow from one lender to repay another each time a loan is due as this only increases the interest burden, leaving you more heavily in debt.


The above information is prepared in collaboration with the Ministry of Law, Association of Banks in Singapore and Credit Counselling Singapore.