Are you struggling with multiple debt obligations?

Managing debt can feel like an overwhelming task at times, but proper planning and prioritisation can help you take control of your finances.

We at will show you a few useful tips so that you can pay off your debt soon:

  1. 1. Tackle Bad Debt First

    Debt can generally be classified into two forms, "good" debt and "bad" debt.

    Good debt refers to loans that you take on in order to invest in something which you expect will increase your overall wealth. It includes housing loans and education loans.

    Bad debt, on the other hand, offers you no such return. This is consumer debt, or money that you have borrowed to buy an asset that depreciates over time. Bad debt includes credit card debt, personal loans, and even car loans.

    If you have any bad debt, you should make it a priority to pay it off as soon as possible. Bad debt often comes hand-in-hand with high interest rates, which means you will be throwing more money down the drain over time.

    Also, defaults or late repayments on your debt will affect your credit score, which in turn means that you may have difficulties taking on a loan in future.

  2. 2. Start With The Debt Bearing The Highest Interest Charge

    If you had $1,000 to spare, should you use it to pay off a $10,000 debt bearing an interest of 7%, or a $1,000 debt bearing an interest of 4%?

    Most people would tell you to start with the debt bearing the highest interest charge, as this helps reduce your total interest paid in the long run.

    There is an alternative theory that says you should pay off your smaller debts first. The satisfaction of crossing out an item off your debt list may provide more motivation and encourage you to keep hacking away at the debt.

    This "low-hanging fruit" approach can be useful if you have multiple debts and the interest charge of these debts do not differ very much. Otherwise, just stay focused on the debt with the highest interest cost.

    If you're carrying a balance (debt) on your credit cards and you're struggling with interest payments, one of the best ways to consolidate your debt is by getting a balance transfer credit card and transferring your balance to it.

    What is a balance transfer and how can it benefit you?

    A balance transfer card lets you shift your debts from your high interest cards or credit lines to a single credit card account with a low interest rate for a certain amount of time. Tip: look for a card with a 0% intro interest rate for a long period of time.

    Using a balance transfer card can help you vastly reduce the cost of your debt if you pay it off during the low interest rate intro period. Keep in mind that you can usually only transfer balances to cards from different banks (e.g. you can't transfer a balance from one Citibank card to another Citibank card).

  3. 3. Make A Debt Repayment Plan

    Setting out a debt repayment plan is important to help you track your progress and stay financially disciplined.

    To get started, list down all your outstanding debts, along with their interest charges and repayment periods.

    Take note also of any minimum payment due on each debt. Credit card debts usually have a minimum sum payable each month. If you fail to meet this payment, an additional late payment fee will be imposed.

    Next, arrange your list in the order of debts that you want to pay off first. As you set aside spare cash each month to pay off the debt, make sure you meet the minimum payments on all the items on your list first, to avoid additional charges. Then channel everything else to the debt item at the top of your list.

Is The Goal To Be Debt Free As Soon As Possible?

You should certainly aim to eliminate bad debt as soon as you can. But in the case of good debt, the short answer is, "It depends."

For example, if you had taken on a fixed-rate home loan at a time when interest rates were relatively low, you may be better off investing your spare cash in something that offers you a higher rate of return.

However, make sure you consider the risk of any higher-yielding investment. Stocks and unit trusts may advertise a higher rate of return, but you also risk losing part or all of your principal.