Depending on how much and how you handle, debt can be a useful financial tool or baggage complicating your life. Amongst all, a high-interest debt like credit cards and personal loans have been the fastest-growing debt category in the last few years. Also, they are the primary reasons why one spins around the debt and eventually becomes helpless.
We all are aware about the perquisites of having one or more credit cards and taking personal loans for meeting vogue expenses, one of them is where people intentionally or unintentionally accumulate a huge debt amounting to as much as 24 times their monthly salary. Therefore, you need to understand that the credit limit sanctioned by the provider needs to be repaid in the given time and if you’ll not care about the repayment while spending, you’ll not be able to manage debt, resulting in bad debt. Considering these situations, people have started believing in the myth that applying for a personal loan is completely a wrong step. There are scenarios that act as a counter for such personal loan myths like medical emergencies, where you find yourself helpless and choose credit card or personal loan to pay the bills.
To avoid these type of scenarios, the Monetary Authority of Singapore has implemented sundry measures to limit the total borrowing allowance for unsecured credit to just one-year’s income from June 2019.
Bad debts are mainly those borrowings that are beyond what you can manage. On the other hand, good debt refers to the money you owe and is within your financial reach. The following table will help you clearly understand the marginal difference between both types of debts:
| Bad Debt | Good Debt |
| Borrowing money for vogue or long-term investments | Taking a loan for higher education or for upgrading skills |
| Borrowing money to maintain a luxurious lifestyle, or taking personal loans for bad credit improvement, which you cannot afford | Opting for a loan to meet the medical emergency |
| Using a loan for going on holidays you cannot afford | Borrowing money at a lower interest rate to pay off the unsecured debts |
According to the Department of Statics Singapore, the average debt of a Singaporean household is about S$57,637 per capita as of December 2017, which is roughly 5% higher than the last year. Most of this debt comprised of home loans amounting to 75%, while other categories include motor loans (3.2%), credit card debt (3.4%), and others (18.4%), inclusive of personal, education and other alternative loans. This states that household debt is increasing slightly faster than their assets.
Ways to Manage Debt
Effective management of debt has multiple advantages, one of them is it improves credit score that eventually strengthens the credibility of an individual in the long run.
If you have a huge credit card debt, go for a personal loan in Singapore to settle it down in full, but it is not a permanent solution, you need to pay off the installments of personal loan gradually to settle down the account. This tactic will help you improve cash flow because the rate of interest in the personal loan will be lesser than the interest paid on the outstanding credit card balance.
The same tactic could be adopted for other loan types, but make sure you don’t exceed your borrowings for any reason other than the emergencies from your income. Otherwise, you will be a victim of bad debts, resulting in multiple negative scenarios and ending up being a defaulter.