How to Pay Off Credit Card Debt in Singapore

Credit card debt is a growing concern in Singapore, fueled by rising living costs and easy access to credit. With high interest rates (up to 27.9% p.a.), it’s easy for individuals to fall into a cycle of escalating balances, where minimum payments barely cover the accruing interest. Without a structured repayment plan to tackle credit card repayments strategically, it's easy to fall deeper into debt, impacting your financial well-being and limiting your future credit options.

This guide provides practical strategies on how to pay off credit card debt in Singapore effectively, empowering you to make informed financial decisions and regain control of your finances. Learn ways to tackle your credit card debt strategically, avoid common pitfalls, and achieve financial freedom.

The first step towards regaining control of your finances starts with a structured plan. Here are some ways to come up with a plan to pay off your credit card debt.

While making minimum payments keeps your account in good standing, it does little to reduce your overall debt. Aim to pay more than the minimum amount each month. Even small increases can significantly reduce your debt over time and save on interest charges.

>>More: Learn how to get a free credit score check in Singapore

This method focuses on paying off your smallest debt first, regardless of interest rate, to build momentum and motivation. Once the smallest debt is paid off, you move on to the next smallest, and so on. This approach can provide a psychological boost as you see quick wins early on.

On the other hand, the debt avalanche method prioritises paying off the debt with the highest interest rate first. This saves you the most money on interest charges in the long run, but it may take longer to see significant progress.

Consider setting up automatic payments so never miss a due date and avoid racking up further debt with late fees. Automating payments also helps you stay consistent with your repayment plan, making it easier to manage your credit card debt effectively.

If you're facing financial difficulties and looking for ways to pay off your credit card debt, you can consider reaching out to your credit card provider. Many issuers in Singapore offer assistance to help cardholders get back on track.

>> Learn more: How to consolidate your credit card debt

These can include negotiating lower interest rates to make repayments more manageable, restructuring your debt to extend your repayment period or consolidate balances, and even temporary forbearance, which allows for a temporary suspension or reduction of payments in certain situations.

Before contacting your issuer, be prepared to explain your financial situation and provide supporting documentation. While entering into a repayment assistance plan may be recorded in your credit report, addressing your credit card debt and establishing a positive repayment history is essential for maintaining a good credit profile in Singapore. This can impact your ability to obtain loans, credit cards, and other financial products in the future. By working with your issuers, you can explore potential solutions to regain control, get out of credit card debt and maintain a healthy credit profile.

If you're juggling multiple credit card balances, consolidating your credit card debt can simplify repayments, help you save on interest charges, and provide a faster way to pay off your credit card debt. Here are some common debt consolidation strategies and their pros and cons:

This type of credit card charges no interest for a promotional period, often for 6 to 12 months, and allows you to transfer all your other credit card balances over to it. Make a disciplined plan to clear any unpaid amount by the end of the promotional period because any remaining balance after is subject to a regular credit card interest rate of 27.8% to 27.90%.

Pros:

• 0% promotional interest rate

• Higher chances of eligibility as loan is on a credit card application

Cons:

• Will incur a processing fee when consolidating debt

• Shorter repayment periods

• High interest kicks in immediately after promotional period ends

>> Compare: Compare the best 0% balance transfer credit cards in Singapore

You can use an unsecured personal loan to consolidate credit card or other types of debt. The loan may give you a lower interest rate on your debt and a fixed repayment period (12 to 84 months) to clear off your debt.

Pros:

• Fixed interest rate and monthly payment

• Fixed payment period

Cons:

• Customers with excellent credit, higher incomes or loan amounts enjoy lowest rates

• May include a processing fee

>> Compare: Find the best personal loans from top lenders in Singapore

A debt consolidation plan is a government-approved scheme available with all leading banks in Singapore. If you have several open unsecured loans, such as lines of credit and credit cards, and your debt is more than 12 times your monthly income, you can go for a debt consolidation plan.

Pros:

• Fixed interest rate and monthly payment

• Fixed payment period

• Long repayment period of up to 10 years

Cons:

• Other loan facilities are closed or suspended until you clear this loan

>> Compare: Find the best debt consolidation plans in Singapore

If you're struggling to manage your credit card debt and other unsecured debts despite your best efforts, it may be time to consider professional debt relief services in Singapore.

A Debt Management Plan (DMP) is a structured program that helps you repay your debts with the assistance of a credit counselling agency. Credit Counselling Singapore (CCS) is a non-profit organisation that offers free credit counselling and DMP services. CCS will work with you and your creditors to create a personalised repayment plan, consolidate your debts, and negotiate more manageable terms.

CCS also offers a Debt Repayment Scheme (DRS), a formal debt restructuring program for those with unsecured debts exceeding S$100,000 and facing financial hardship. Under the DRS, a repayment plan is developed with your creditors, and you make a single monthly payment to CCS, who then distributes it to your creditors.

>> More: Common questions about credit card debt management in Singapore

Bankruptcy is a legal process that can provide debt relief but should be considered a last resort due to its significant consequences. In Singapore, bankruptcy involves surrendering your assets to a trustee who will sell them to repay your creditors. Bankruptcy can severely impact your creditworthiness and ability to access credit in the future.

>> More: Complete guide to bankruptcy in Singapore

If you have the means to make a substantial lump sum payment, you can consider negotiating a discounted settlement with your credit card issuer. This involves contacting your issuer and proposing a reduced final payment to settle your outstanding debt.

However, this option is typically only viable if you can access a significant lump sum, perhaps through the sale of assets or a low-interest loan from a reputable financial institution. Keep in mind that your issuer is not obligated to accept your offer, as it could result in a loss for the creditor. Keep in mind that this method may also have implications for your credit profile and potentially affect your ability to obtain credit in the future.

While implementing strategies to pay off your credit card debt, it's equally important to assess your living expenses and identify areas for savings. Freeing up additional funds can significantly accelerate your debt repayment journey and prevent you from accumulating further debt. Here are some practical tips for Singaporeans to lower their living expenses:

• Scale down your subscriptions: Opt for cheaper plans for your internet, mobile and utilities. You can also consider temporarily unsubscribing to non-essential plans like Spotify or Netflix.

• Embrace free or low-cost entertainment: Explore Singapore's many parks and gardens, visit free museums on certain days, or attend community events.

• Use a budgeting app: Track expenses and make conscious spending choices with an excel sheet or app

• Reduce dining out: Opt for home-cooked meals or affordable hawker options.

• Optimise transport costs: Utilise public transport or consider cycling for shorter distances.

• Reduce energy consumption: Conserve electricity and water to lower your bills.

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