Dealing With Too Much Debt: How Did It Happen?

Do you know the cause of your over-indebtedness?

• If you find yourself building up debt that you are increasingly unable to pay off, this may be a sign of overspending, and you need to be more careful! But many things could have led to this, so don't be too hard on yourself; just start taking action today!
• It’s not just big spenders who can become overly indebted; multiple small purchases using credit can also lead to your having too much debt. 
• How familiar are you with your spending habits and your credit score?

To start, you should add up the total amount of debt you owe. In particular, look at the type of debt you owe: is it a large mortgage you need to pay that is causing a problem? Perhaps you have too much credit card debt? Maybe it’s student loans or possibly some large, unexpected emergency. 

You should probably analyse your spending habits: where is most of your money going? Are you making too many unnecessary purchases and overspending with a debit or credit card? If so, what are your reasons for this? Perhaps you’re buying things not based on what you need but on what your friends are buying. But many things could have led to this, so don't be too hard on yourself; just start taking action today!

While you are speaking to your bank about your debt, you may also want to simultaneously talk to a financial counsellor about what lifestyle changes you can implement to spend less, save more, and be more able to repay your debt.

Next, you will want to assess how much of your income is going into paying off your debt. This would involve calculating your total debt servicing ratio (TDSR), which is the portion of a borrower’s gross monthly income towards repaying monthly debt obligations. Generally, the TDSR for a borrower would differ from country to country. For example, in the US, it is 36%.

In Singapore, according to MAS, the TDSR is 60%. (*Note: from 16 December 2021, the TDSR will be tightened to 55% for new mortgage loans as part of property cooling measures, but the ratio for refinancing existing property loans before this date will remain at 60%.)

Finally, check out your credit score, which incorporates indicators including:

• Whether bills are being paid on time 
• How much of your credit limit you're using 

Your credit score tells lenders how likely you are to pay them back. A poor credit score will mean your credit options are limited and more expensive. You can get a credit report from a credit bureau in your country to find out your credit score.

Singapore credit bureaus include:

• Experian Credit Bureau Singapore

• Credit Bureau Singapore

Your credit report contains information relevant to deciding your credit score and is distributable to banks, credit card companies, finance companies or yourself upon request.

TOO MUCH DEBT: HOW DID IT HAPPEN? COMPLETED. ✅

Sources: 

1. https://www.moneysense.gov.sg/articles/2018/11/credit-reports-and-creditworthiness 
2. https://www.investopedia.com/ask/answers/12/reasonable-amount-of-debt.asp
3. https://www.investopedia.com/terms/d/debtconsolidation.asp
4. https://www.investopedia.com/credit-cards/balance-transfer-credit-card/
5. Header photo from Pexels