Manage your credit card debts

While Singaporeans can give themselves a big ol’ pat on the back for reducing credit card debt to a five-year low (only $8.7 million was written off as bad debt by banks in January this year compared to $18.9mil in 2004) there’s no denying that there’s been a surge in the credit card take-up rate. According to a report by the Monetary Authority of Singapore, credit cards in circulation numbered 5.1 million early this year, compared to just 2.8 million some five years ago. Last year, Citibank launched the world’s first cardless payment system in Singapore, allowing consumers to pay for goods and services with a tap of a finger on a biometric scanner. Faced with the tempting prospect of being able to foot bills with a Bond-esque finger swipe, what’s a guy saddled with debt to do? Have a plan and stick to it, come hell or high water.

Stop the bad behaviour
Sheer willpower will only get you so far. It takes a strategic plan to eliminate debt and the first step in that plan is putting a stop to the bad money habits that got you in the red in the first place. In other words, eliminate debt by not creating more debt. Unbridled spending when you’re already saddled with debt has you rolling over more debt each time you can’t pay it off. Punitive compounding interest rates, late payment fees and overdraft penalties all add up – creating a vicious cycle that results in a ballooning mountain of debt.

Track your spending
Often, it’s not the big ticket or emergency spending but the unchecked small expenses that land us in debt. If you set aside the $10 that you might’ve spent on a fancy latte, cigarettes, or snacks every day, you’d have, by the end of the year, $3,600 to go towards repaying your debt. David Bach, author of The Automatic Millionaire, calls this the ‘The Latte Factor’; unconscious daily spending on small items that could go towards a savings or investment plan, or paying off debts. The earlier you apply the Latte Factor to paying off debt, the faster you’ll climb out of it.

Pay more than you have to
Don’t get lured into the false security of making only the minimum payments each month. Aiming higher can make a huge difference to how long your debt drags on. An $8,000 debt with a minimum payment of $160 each month, at an interest rate of 16 per cent takes 30 years to pay off. If you aim to pay almost twice the minimum, say $300 each month, the debt will take only three years to pay off. See the difference?

Get smart with interest
Compounding interest rates are your best friend when you’re growing your wealth but in debt, they’re your biggest enemy. Several ways to keep punitive rates from blowing up your debt balance:
• If you have debts on multiple credit cards, transfer all your balances to the one with the lowest interest rates.
• If you own a life insurance policy with cash value, borrow against the policy. Creating debt to service another may not seem like a prudent thing to do, but it makes sense if one interest rate is much lower than the other, as they often are on life insurance policies.
• Alternatively, get tough and call your credit card company to ask for a reduction in rates. With the competition among credit card companies, you can get your rates lowered by simply asking. Jean Chatzky, personal finance expert and author of Pay It Down!: From Debt to Wealth on $10 a Day, even has a simple script for you to follow on http://www/oprah.com (yes, even she approves) when on the phone with a rep from the credit card company.