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Have You Heard About the Debt Snowball Strategy?

WHAT IS THE DEBT SNOWBALL STRATEGY?

Popularized by personal finance author Dave Ramsey, Debt Snowball is a strategy used for paying down debts. It focuses on paying off your smallest balance first before moving to the larger ones. The person lists down all his or her debts and categorizes these debts from smallest to largest. Money will then be allocated to pay off the smallest debt first, while making only minimum monthly payments on the other debts.

This strategy would not save you as much interest as the Debt Avalanche, but it can help you stay on track in your debt repayment journey.

HOW CAN YOU GET STARTED?

List down all your debts to get started. Then, gain momentum as you knock out each remaining balance. When the smallest debt is paid in full, you will move your efforts toward the next smallest debt on the list. To illustrate, here are the steps:

Step 1: Write down all your debts from smallest to largest, regardless of its interest rate

Step 2: Make minimum payments on all your debts except for the smallest debt on your list.

Step 3: Pay as much money as you can on your smallest debt. This is going to be your priority.

Step 4: Repeat the process until each debt is paid in full.

HOW CAN I APPLY THIS STRATEGY?

Let us imagine that you can afford to put aside S$1,000 every month to pay off your three sources of debt: S$30,000 worth of student loan debt (minimum monthly payment of S$500), S$5,000 worth of car loan debt (minimum monthly payment of S$100), and S$2,000 worth of credit card debt (minimum monthly payment of S$50).

Using the Debt Snowball strategy, you would spend a total of S$650 to cover each debt’s minimum monthly payment. You would then put the remaining S$350 toward the credit card debt because it is the smallest on your list.

Once the credit card debt has been fully paid, the extra payment will go towards your second-smallest debt. At some point, you will be able to clear up your car loan and focus all your money on eliminating your student loan. Like a snowball, each paid-off debt frees more cash to get rid of the remaining ones.

WHAT ARE ITS ADVANTAGES AND DISADVANTAGES?

Its advantages include increasing your motivation and easing your implementation. Paying off three or more debts can seem more manageable if you break it down into smaller pieces. You see, you can get frustrated with the repayment plan if you focus all your efforts on the largest debts. Furthermore, this strategy is easy to implement. You do not need to compare the annual percentage rates (APRs) for all your debts or to tackle deeper into the terms and conditions. You simply need to know the balance owed and its minimum monthly payment to categorize each debt.

On the other hand, its disadvantages include issues in time and interest. Since this strategy focuses on repaying debts according to the balance, it may take you longer to pay off your debts. Interest can be another factor because you are prioritizing balances over APRs. Remember, you could end up paying more money in interest over time.

WHAT ARE THE KEY TAKEAWAYS?

The Debt Snowball Strategy helps you pay off debts by focusing on your smallest balance before moving on to the remaining ones. You will always pay the minimum on each of your debts, except on your smallest debt. This strategy cannot save you as much interest as the Debt Avalanche, but it can help you stay motivated.

Prudent use of personal loans can save you more in the long run, especially if you’re currently saddled with severe credit card debt or are facing a financial emergency that could wipe out your savings. Ultimately, the only way to prevent bad debt from snowballing is to have the discipline to control your spending until your loan is repaid. If you find yourself in any of the above situations and are looking for a personal loan to help relieve some of your financial burden, be one of the first 2 applicants daily to have your 1st year’s interest (up to S$550) covered by SingSaver. Click here to learn more. Offer until 21st Mar 2022. T&Cs apply.

Image Credits: ramseysolutions.com

If you need professional help when it comes to managing your debt, you can seek assistance from a credit card counselling organization such as the non-profit organization called Credit Counselling Singapore (CCS).

Sources: 1, 2, & 3

6 Overlooked Perks Of Using Credit Cards In Singapore

From ease of purchasing items to fraud protection, credit cards offer the several benefits. Just please use your plastic card responsibly!

#1: RECEIVE ONE-TIME BONUSES

Signing up for new credit cards will qualify you for the initial bonuses or sign-up rewards. You can new items or reward points that can be redeemed for travel, gift cards, and more.

In contrast, a debit card that comes with a bank account generally offers no initial bonus or ongoing opportunity to earn rewards.

#2: TAKE ADVANTAGE OF THE GRACE PERIOD

When you make a purchase using your debit card, your money disappears right away. When you make a purchase using your credit card, your money remains in your account until you pay for your bill.

There are two main benefits of having a grace period. Firstly, the time value of money will save you money. Delaying eventual payment will allow you to earn money during the grace period. Secondly, you will have a set period to pay for your purchase. You do not have to watch your bank account balance vigilantly.

#3: BE REWARDED WHEN YOU SHOP

Reward credit cards allow its users to earn points for every purchase. Many reward credit cards give bonus points for certain categories such as restaurants, groceries, or petrol.

When your earnings reach a threshold, points can be redeemed for travel or gift cards to shop at participating retailers and restaurants. All you need to do is to choose a card that suits your spending pattern and your lifestyle!

#4: INDULGE IN THE COMPLEMENTARY CASHBACK

You can get a percentage of the items you purchase refunded back into your account with the credit card’s cashback feature. How much you get back varies per bank or credit card. Nonetheless, rebates usually apply only to certain items.

For instance, Standard Chartered’s Unlimited Cashback credit card* lets you receive 1.5% cashback on your eligible purchases. No minimum spending is required. Another example of no minimum spending is the Citi Cash Back+ Card*. It offers 1.6% cashback on all spending.

Note: *Terms and Conditions apply.

#5: BUILDING OF CREDIT SCORE

When people assess whether you are qualified for a loan extension or not, banks do not just look at your annual income. These banks also examine your credit rating for indications of proper financial management.

By using your credit card sensibly and regularly, you can build reputable credit rating. Enjoy lower interest rates for your unsecured loans by having a better credit score. Be sure to pay off your balances each month and keep your spending to a minimum.

#6: EXTRA LAYER OF PROTECTION

Apart from the convenience that cashless shopping can bring, certain credit cards offer a range of purchase protection insurance. This type of insurance will help ensure your peace of mind as you shop. The following protections can be given by your issuer: a. price protection, b. purchase protection, and c. fraud protection.

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Price protection refers to getting back the difference or a percentage of the difference if an item you bought on your card drops in price within a timeframe. Purchase protection refers to the coverage against theft or accidental damage. This protection usually lasts until six months. Lastly, fraud protection refers to being refunded for purchases made using your stolen credit card or card details.

Sources: 1, 2, & 3

Personal Debt Among Young Singaporeans Soars During Pandemic

Personal debt among young Singaporeans have been rising during the COVID-19 pandemic and the situation could turn sour once the interest rates start to rise.

Recent Credit Bureau Singapore data showed that people in their twenties have been taking on increasing amounts of other debt since the second quarter of 2020. The data manifested that the average personal loans and overdraft balances for those under 30 elevated by about 23% in the first quarter of this year over the last three months of 2020.

To illustrate, the average personal loan and overdraft balances for borrowers aged 21 to 29 increased to S$49,689 in the first quarter of this year. This is about 42% higher than the average of S$34,941 in the first quarter of last year.

It is important to note that the borrowing limits in Singapore were capped in 2015 to help keep unsecured debt in check. Experts say that the higher debts observed recently could have been fueled by the low interest rates among other factors.

RISE OF UNEMPLOYMENT

Last March, the unemployment rate among residents below the age of 30 was 6.4 per cent. Unemployment and lower earnings could be the reasons why young adults take personal loans and overdrafts. They try to borrow their way out of the crisis.

“If it is due to youth unemployment, it is often transitory. And the Government already has the SGUnited Traineeships programme and other relief to help young people and help small firms hire young people.” – Singapore Management University’s Associate Professor of Finance, Mr. Song Changcheng

LACK OF PERMANENT JOB

Ms. Selena Ling, OCBC Bank Chief Economist, said that the impact from rising personal debt among younger people will depend on when things turn around in terms of their professional life.

She added: “If subsequently they can find permanent jobs, then they can pay off the debts. But if the duration is extended, then loan delinquency or default rates may rise.”

MANAGING YOUR DEBTS

Awareness of your overall debts and assets is the first step. Include every document, billing statements, loans, and mortgages you have. Take immediate action when you notice that your debts are getting harder to manage.

After seeing the bigger picture, it is time for you to reduce your expenses. Cut down unnecessary expenses such as designer bags or artisan coffee runs. Add the minimum payments of your debts and the cost of your necessities to your monthly budget. To aid your realistic budget, you may sell your unused or underused items online.

Image credits: unsplash.com

Lastly, you can seek professional help. Start by seeking help from your family and friends. Then, consider hiring a professional to reduce your interest rates and penalties at forgiving timeframe.

Source: 1

Splurges That Turn Out To Be Wise Savings

Having money allows you to live the life you desire to live, if you spend it wisely. You have to weigh whether an item is an essential (need) or a non-essential (want) expense. In some cases, you have to spend more at the moment to save more in the long run.

Certain items are worth splurging on to help you earn more money or experiences in the future. Here are just some splurges that are actually wise savings:

#1: PURCHASING AN INVESTMENT FOR YOUR CAREER

Purchases that help you advance in your field are good investments. Know which tool you cannot work without and list them down. For instance, you must invest on a high quality camera and a reliable laptop as a photographer. There are also online classes and software programs that a photographer can benefit from on a daily basis. If an item supplements your future growth, it could be a smart move to spend extra cash on it.

#2: PURCHASING ITEMS THAT YOU USE A LOT

Before spending your hard-earned money on a product or a service, think of how long you are likely to use it. Then, breakdown the price using these factors (e.g., cost per wear). You may realize that the iPad you have been eyeing for so long may only cost you S$1 per day due to your current academic needs.

Home appliances and cookware are just some of the items that we use frequently. You can save so much money by cooking at home. Splurging on quality kitchen items such as knives and refrigerator can make a difference. It is recommended to invest more money on home appliances and cookware that you will use heavily because you will only end up spending more on repairs with low-quality appliances.

#3: PURCHASING ITEMS THAT YOU WILL CONSUME

Now more than ever, it is important to consume items that can strengthen our immune system. You really are what you eat! So, do not feel guilty about spending more money on fresh produce and healthier food items. What you spend on these items may help reduce your hospital bills.

Along with grocery shopping comes the ability to save more time. You may get your groceries delivered to your doorstep instead of going to the store. This will minimize your contact with the crowded places and will enable you to have more time to enjoy your day.

#4: PURCHASING SOMETHING YOU HAVE SAVED UP FOR

It is alright to splurge on an item that you have strategically saved up for in advance. For instance, you may have kept a portion of your monthly salary to splurge on a good laptop or a luxury bag at the end of the year. Some non-essential items are worth spending money on as long as you have saved enough funds to cover your significant expenses. Furthermore, it is a rewarding and a joyful experience to see the fruits of your labor.

Image Credits: pixabay.com

It is more than fine to get spend your hard-earned money on the finer things in life as long as you are smart about your purchases. Consider the points that were previously discussed above.

Sources: 1 & 2

Telltale Signs That You’re Financially Unstable

Your sense of stability will be at its peak at the age of 40. During this phase, you will get more control on your finances and your family plans. You may prioritize your child’s education and sustain the needs of 3 people in your household. On the flip-side, being financially stable in your 20s is a rare sight!

It is terrifying to navigate through the adult world while being confused with will happen next. Sometimes, you think you have plenty of money to spare. The next minute, you feel that you need to call your mom or dad for help. This stage of instability can last up to your 30s.

Relax. You are not alone. For a friendly warning and healthy awareness, here are the telltale signs that you are not doing financially well.

999. WHAT’S YOUR EMERGENCY?

It comes as no surprise that you will borrow a small amount of money while you are applying for a job. Sometimes, you may ask for a little help too. However, if you have your parents on speed dial as your financial helpline, you are in a sticky situation.

Your parents may not be able to support your financial needs all they time as they are going through another phase of their lives – retirement. It is seemingly embarrassing to rely on your parents when you have no cash left as an adult. Hence, you need to do your best not to be an added weight to your parents.

YOU BETTER HAVE MY MONEY!

With red markings on your calendar, you saw that #PAYDAY is two days down the line. You keep on waiting for this day to come. You have not gotten your salary yet, but you have numerous plans on how to spend your money. Do you want to hangout with your friends at the pub? Do you want to purchase the designer bag online? You have no worries! You got plenty of money. At least, that was what you thought.

Seven days after your payday, you are already regretting most of the things that you have done. Why didn’t you spend your money wisely? You should have kept some of your money in your investment portfolio. Now, you are wondering how you will get through the week with only S$50 on your pocket.

PAY ME WHAT YOU OWE ME!

It is your creditor’s phone operator again. The operator is calling to remind you about your unpaid credit card bills. You think you are responsible just by carrying a credit card? You think you will only use it for emergencies? Think again!

As you get comfortable with swiping your expenses on your plastic card, you will be able to widen the scope of your shopping categories. After two to three months, you will notice that you will feel safe to swipe your card when purchasing new clothes and when eating out. Online shopping? It is easy with a credit card!

Your bill arrives and you feel horrific! You are wondering where you can borrow money to pay for all your bills.

WHAT SAVINGS?

You are in a financially unstable place if you do not have a savings account. A payroll account does not count! It is essential for working adults to have a separate savings account to create an emergency fund.

People typically see the value of a savings account after being caught in a financial mess with no emergency funds or no one else to run to. Taking loans or cash advances can incur more debt in the future.

THE FUTURE IS NOT NEAR

You are not thinking about your retirement. Retirement? Yes. You are too young for this. You have your lives ahead of you. But, time is in your hands. Use its power to create a wealthy retirement fund.

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You do not want to beg people for money 30 to 40 years down the road. Being financially stable is a lot of hard work, but you can achieve that by planning and spending wisely. Reach your financial goals in a slow and steady pace.

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