Outstanding debt can take a serious toll on even the best retirement plans that have been carefully crafted over a lifetime. Incurring debt is seemingly unavoidable in the modern age, as a result of both the higher cost of living and consumerism.

With each passing year, more and more Singaporeans sink into the debt fund as they struggle to cover their daily expenses and make ends meet. As of December 2016, the average Singapore household incurs an estimated $55,000 in debt, which is an increase of 3% from 2015. Easily 75% of this household debt comes from unpaid home loans. Some of this outstanding debt may even force retirees to expand their assets to cover their debt instead of passing it on to their beneficiaries.

However, there are several ways to effectively settle outstanding debt to ensure you don’t jeopardize some of the best retirement plans you’ve ever devised.

1. Set a budget and track

Creating a proper budget is a great way to analyze and plan finances. By allocating a fixed amount of money to a specific expense per month, the amount of expenses can be more strictly monitored and precautionary measures can be taken quickly if expenses exceed the stipulated budget. Only through proper budgeting can individuals or households create the surpluses needed to pay off existing debts.

Certain financial tools, like Excel spreadsheets or even Mint.com, are particularly helpful for keeping track of a personal or household budget.

The main problem of a person who does not keep track of his monthly expenses is that he does not know if he ends the month with a net reduction in savings, that is, if the expenses exceed the income and eat up the savings. Knowing the amount of balance left is crucial as a continued negative balance could lead to the creation of new debt. This type of debt is the most dangerous, as it accumulates at seemingly manageable interest rates month after month. Before the individual knows it, he/she will have made substantial interest-only payments.

Therefore, tracking tools are crucial to identify areas of weakness in monthly spending habits, but a person must take affirmative action to reverse the negative balance situation. This can be done by listing monthly expenses and making necessary cutbacks on certain expenses. Discipline is the key.

2. Staggered debts by interest rate

Debt laddering is another technique used to settle outstanding debts. It involves listing all current debt by interest rate, starting from the highest interest rate to the lowest interest rate. Debt with the highest interest rate costs more money, so this debt must be paid off first.

By paying off the most expensive debt first, your total debt will go down significantly faster. Some people who incur multiple debts per month and employ escalation in their finances generally pay off the minimum payment required for each debt and use the cash balance of their payments to pay off more of the debt with the higher interest rate.

For example, let’s compare two debt instruments: one, a credit card with an outstanding balance of $4,000 at an interest rate of 24% and another, a line of credit with an outstanding balance of $8,000 at an interest rate of 16%. . Ideally, the minimum monthly payment required to pay off each debt would be made first, and any leftover finances would be channeled to pay off more of the credit card debt, even if the amount owed is less.

Escalation is especially useful for dealing with multiple debts and avoiding the accidental creation of yet another new debt. Escalation also instills a sense of financial discipline that’s good for dealing with unresolved debt and preventing those debts from doing too much damage to the retirement plans you’ve considered.

3. Balance transfers

Balance transfers are another tool used to reduce interest expense while trying to pay down debt over several months.

For example, given the competitive nature of the unsecured credit market, banks often offer very low interest rates for customers who transfer their existing unsecured debt from other banks. Effective interest rates could be as low as 4% per annum versus a country’s normal 24% per annum on credit card balances. However, the problem is that such promotional rates last only for a certain period, for example, 6 months. However, balance transfers can lower interest costs on existing debt.

Balance transfers carry their own risks. People who transfer balances should remember to pay off the debt after the transfer or look for another similar opportunity before the lower interest on the account the balance is transferred to expires, otherwise you risk paying a higher rate of interest. even higher.

People who use balance transfers may also not address the ongoing accumulation of debt, thus eliminating any benefits of such a strategy. In the end, despite this cost-saving strategy, people end up with even more debt that hits savings, not to mention future retirement plans.

4. Contact Consumer Credit Counseling Services

If a person is having enormous problems paying off their debts or even making the minimum monthly payments, they should consider hiring a consumer credit counseling service. In Singapore, this service is aptly named Credit Counseling Singapore (“CCS”) and offers solution-based credit counseling for people beset by financial debt.

CCS’s debt management services are only $130 and match people burdened with debt with a credit counselor. The credit counselor will assess the indebtedness of an individual’s situation and assist them in making a financial estimate of the debts owed, identify the available resources that can be used to cover the debts and even plan a monthly budget that incorporates all living expenses. Solutions will be sought to address the problem of debt and negative monthly balances to ease the burden of debt.

If you are concerned about how your debt will affect your retirement plans, contacting CCS would be the right way to go. If the retirement plan has already taken into account the old debt, an adequate financial restructuring could reduce the interest and installment payments to be made.

Even the best retirement plans can be compromised by unresolved debt. By adopting better financial habits, such as setting a budget, escalating debt, and transferring balances, an unresolved debt situation can become easier to manage. If the debt problem persists, CCS can be contracted to find a solution to avoid unresolved debt. Financial advisors can also be consulted to optimize finances and manage monthly expenses, thus ensuring a better and more secure retirement in the future.