You will be able to tell when cutting spending is no longer enough and outside help is needed.
Kumar is 38 and works in retail sales in Woodlands. Three years ago he had one credit card and no debt. Then his hours were cut for a few months, his car needed repairs, and his mother had a hospital stay that her MediShield Life and savings did not fully cover. He covered the gaps with his cards and a credit line and planned to catch up later. His hours came back and his mother recovered, but the balances stayed where they were and kept growing.
Last month he took a cash advance on one card to pay the minimum on another. He had promised himself he would never do that.
Most of this course assumes you can fix your debt with a better plan: a cheaper loan, a balance transfer, an avalanche or a snowball. For some people, at some point, that stops being true. Cutting spending and sending the extra to the highest rate is no longer enough, because there isn't enough extra to send. This lesson is about recognising that point early.
The clearest warning sign is using credit to pay credit. A cash advance on one card to pay another card, a balance transfer taken because you cannot make this month's payments rather than to save interest, a new personal loan to cover existing loan instalments, an instalment plan used to free up cash for bills.
Each of these can be dressed up as a sensible move, and a balance transfer really can help when it is part of a plan to clear the debt, as lesson 3.3, Balance transfers: a cheap bridge with a fee and a deadline, showed. So look at which way the total is moving. If what you owe goes up every time you borrow to make a payment, the new borrowing is paying for the old, and the hole is getting deeper.
Kumar's cash advance cost him a fee and interest from the day he took it, as lesson 2.3, Cash advances, late fees and other costly card charges, explained. It moved S$300 from one lender to another and left him owing more than before.
The second sign is when the minimum payments alone take so much of your income that essentials suffer. Rent, food, transport, utilities, your parents' allowance or your children's school costs start being paid late, or cut, so that the minimums can go out on time.
With figures made up for the example, Kumar owes S$14,000 and S$9,000 on two cards at 26%, and S$7,000 on a credit line at 20%. His minimums come to about S$915 a month, roughly 20% of his S$4,500 take-home pay. The interest alone is about S$615 a month, so only about S$300 of his minimums actually reduces what he owes.
When you put your own numbers into lesson 6.1, Put every debt on one page, the test is simple: after essentials and your minimums, is there anything left as extra repayment money? If the answer is no, or if you only reached a positive number by cutting essentials you cannot really cut, the avalanche and snowball cannot work, because both need extra money to send.
The third sign is behaviour. You start missing payments, not because you forgot, but because the money is not there. Or you stop opening statements, let calls from the bank go to voicemail, and leave letters from lenders unread.
This is an understandable response to stress, and an expensive one. Missed payments bring late fees and interest, and they are reported to Credit Bureau Singapore, where lesson 1.3, What moves your risk grade up or down, showed they do the most harm of anything on your record. Ignoring calls also closes the door on the conversation that might help, because lenders have more options for someone who contacts them early than for someone who has gone silent.
Every month you wait, three things pile up. Interest is added to the balance. Fees are added for every late or missed payment. And the damage to your credit record deepens as late payments become months behind, and months behind become defaults.
The options also narrow. Some forms of help have conditions on how far behind you can be or how your debts are structured. Someone who seeks help at the first sign has more choices than someone who seeks it after a lender has started legal action.
That is why recognising the signs matters more than how bad your situation is today. Kumar's debt was large, but it had not yet tipped into defaults. Lessons 7.2, Debt Consolidation Plans: one loan in place of many, and 7.3, When to call a credit counsellor, and what they can do, cover the help that exists for people in his position, and it is much easier to use before things get worse.
Most people in Kumar's position already sense something is wrong. What helps is naming it. Go through the three signs and the cost of waiting, one at a time, against your own situation over the last three months, and write down plainly which of them apply to you now, if any.
Check your own situation against the warning signs and write which, if any, apply to you now.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).