Most people start accumulating debt when they get that first credit card for emergencies only. Over time, they get into more and more debt acquiring consumer items, some of which are important, while others aren’t. Other debt includes mortgages that most Singaporeans take to purchase their homes, student loans, car loans and so much more.

Singaporeans do not suffer from a scarcity of lenders. With plenty of traditional banks, credit unions, and licensed moneylenders, borrowing has never been easier. Whereas being able to get credit is important, the debt load that some people end up carrying is tremendous. If you find yourself feeling overwhelmed by all the bills and debts, here are 7 habits that anyone can develop to get out of debt.

1. Live the current reality –

 Most people who are deep in debt find it difficult to face up to the financial quagmire they find themselves in. They bury their heads in the sand and hope the debt will somehow magically disappear. Of course it never does. In fact, in most cases the situation only becomes worse. The first habit to develop is one of living the reality on the ground.

This calls for taking a long hard look at one’s finances and particularly how much in debt he or she is. One must know just how much money they owe in total and then calculate their debt to income ratio. Doing this gives the person a good idea of how much of their monthly income is used to payoff debts. The higher the number, the more likely it is that the person is overburdened by debt. The Singaporean government has put in place guidelines to ensure that their citizens are not paying more than 60% of their income to debtors.

2. No more debt –

One can’t work on debt reduction without first stopping the financial hemorrhage. This means that from this point on, he or she cannot take on any more debt. This will call for a lot more discipline, as one learns to live within their means. The reason why people get into debt is because they go ahead and spend money that they do not have. They make use of credit cards and take personal loans so they can purchase consumer items and go on holidays among other things. In the end, they are spending more money than they actually make from month to month.

To reduce debt, one must spend below what they are making and set aside a fixed sum per month to pay off their debt. The calculated debt to income ratio will inform the person of how much they are paying in debt every month, and the person much then shrink their budget to fit within the remaining amount of money.

3. Track expenses –

This exercise can be very helpful. Most people who overspend will often say that they have no idea where the money went. By tracking all expenses, one is able to tell where the money goes. If the person is old school, then pen paper will do. However, there are many free apps that can help one keep track of their expenses. Examples of these mobile applications are Spendee, Seedly, Expensify and Money Lover. Perhaps the best part about this exercise is the discoveries that one makes. Most people are surprised by how much money they spend a month on coffee or eating out, because they can finally see their spending habits in black and white. With this information, the person is now able to cut back on unnecessary expenditures and put that extra money towards debt repayment.

4. Delay gratification and save instead –

Learning to delay gratification is one of the most important things that anyone can do. It curbs impulse buying and allows the budget to work. By delaying gratification, one does not go into debt because they plan out all their major purchases. Once the person has realized a need for a particular item, he or she starts saving for it and only buys it when they have the full amount saved. Usually, if they are making a large purchase, they may be able to take advantage of cash discounts. Additionally, they will save money that would have gone into the cost of a loan–fees, interest, and maybe even penalties.

5. Work with a budget –

A budget can also be called a spending plan. Every dollar spent must first be planned and then accounted for. As cliché as it sounds, without a plan, one is planning to fail. Their money will simply slip through their fingers and be gone with the wind. Unfortunately, most people think that they are okay not having a budget. However, that is how they usually end up in a lot of debt. Not planning for money means that impulse buying goes to an all-time high and one may have to go into debt to pay for their needs. By creating a budget and working with an expense tracker, one can expect to make the most out of their monthly income. They will also be able to find and seal leaks in their finances. It is important to ensure that the debt repayments are all included in the budget so that nothing is missed.

6. Separate wants from needs –

Buying a new car or a new TV when the old one is still functioning well is not a need. It is a want. Going on vacation cannot be classified as a need. It is important that one separate true needs from things they just want. Food, utilities, clothing, transport, shelter and other such things are classified as needs. Living in a large home, wearing designer clothes and branded accessories, carrying around the latest gadgets, eating out twice a week and other such things are definitely not needs. When someone is deep in debt, the money leftover after paying debts every month should first go to paying for needs. Anything left after than can be saved and used sparingly for wants. Getting out of debt is not for the faint-hearted. Sacrifices must be made.

7. Have an emergency fund –

Emergencies can happen at any time. It is therefore important to put aside a little money that you can use should one arise. Start with simply putting aside $1000 and then after the debts are paid, reroute funds to increase this money until there is an amount equivalent to 3 to 6 months of what you spend every month. This way, if during the time set to repay debts an emergency arises, e.g. the car breaks down and needs fixing, a pet gets sick and needs attention, or you fall ill, there will be money to use and no need to go for a loan instead. By putting an emergency fund in place, one begins the habit of saving, which will become very important in the years following debt repayment.

Getting out of debt actually takes time. It should be approached as a marathon and not as a sprint. Trying to sprint out will only leave one feeling fatigued by the whole exercise. The debtor must classify their debt so that they begin by paying off high-interest debt and then work their way to debt with the lowest rate.

If one is confused by all the debts and bills, they can opt to take up a debt consolidation plan. Debt consolidation plans help to simplify finance by combining all of one’s personal loans and credit card debts into one fixed monthly repayment. Most banks and financial institutions offer these financial packages so it is better to understand the rates for each in order to find the best debt consolidation plans in Singapore.

Remember that the best way to eat an elephant is one bite at a time. The person got into the debt gradually one day at a time, and will have to get out the same way.

This article was written by Money Kinetics. Money Kinetics is Singapore’s definitive guide to financial literacy. Money Kinetics helps Singaporeans compare and evaluate loans, deals, cards and guide them to make their money work for them

By Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to [email protected].