Taking out a loan is a huge financial decision, especially if the amount you’re applying for is quite substantial. Regardless of the package you get, you will end up being in debt for a considerable length of time making payments on the principal amount as well as interest rates, among others. Depending on how faithful you are at making those repayments, you also face potential late charges or prepayment fees.
In short, loans can be financially stressful, especially if you’re not a good money manager. The question now is this: how can you keep your head above water after taking out a huge loan?
Here are some tips to help borrowers like you stay afloat after making a big loan.
Tip 1: Create a Repayment Plan and Stick to It
It’s important to have a sound and sustainable repayment plan after your loan is approved by a bank or a legalised money lender in Singapore.
Create a realistic budget that factors in your loan repayments. Doing this allows you to perform checks and balances to ensure you can comfortably make those repayments without sacrificing other aspects of your life.
Understand that loan repayments are a top priority if you don’t want to end up neck-deep in debt in the long run. The goal is to chip away at the principal amount to minimize the loan’s impact.
Tip 2: Leverage Savings Schemes
The great thing about living in Singapore is that it has a framework to help you save and manage your finances well.
According to the the Monetary Authority of Singapore (MAS), you can use your Central Provident Fund (CPF) Ordinary Account savings for down payment and monthly mortgage payments.
Another option to look into is the Supplementary Retirement Scheme (SRS). While not exactly directed at loan payments, you can get tax deductions from your SRS contributions.
That means more disposable income can go toward your loan repayments. Just make sure you know the contribution limits set by the Inland Revenue Authority of Singapore (IRAS).
Tip 3: Cautiously Explore Debt Consolidation Options
If you have multiple outstanding loans, debt consolidation could give you wiggle room. This combines all your debts into just one, giving you relief by streamlining your debts into one simplifies debt management.
But before you go with this option, check if the new loan doesn’t have higher interest rates or has a longer term. You should also seek advice from financial experts before making a final decision.
Tip 4: Boost Your Income Streams
it pays—literally—to have other income sources when you have multiple loans. Other income sources on top of your main ones can help ease debt management. Additionally, it provides extra funds that can go toward your savings account.
Income generated from other sources, such as part-time work, special projects, or a home business, allows you to live a little more comfortably than with just one income source.
Singapore has a thriving job market where you can find many job opportunities. Even the slightest increase in your monthly income makes debt management much easier.
Tip 5: Prioritize Needs Over Wants
To truly recover financially from a large debt, you will have to cut back on some non-essential stuff. You should learn to say no to some of your wants and make only the essential stuff your top priority. Mindful spending will quicken financial recovery and free you from the unwanted burden of debts.
Wrapping It Up
Taking out a big loan shouldn’t derail you from achieving your goals in life. All you need is a solid plan and the drive to mitigate the impact of debt on your life. Your financial recovery depends on how disciplined and committed you are to being debt-free.
