For most of us in Singapore, our first encounter with debt could be the small amount of money we’ve borrowed from a close friend when out allowances fell short of an impulsive splurge. While that’s nothing serious, it could be the basis of a bad habit that could affect your life ahead negatively.
In terms of official debt you are likely to encounter in your twenties, it might be the study loan you had to take in order for you to get through tertiary education. It can also be that first credit card you’ve so happily applied for and is now having some difficulty to repay. Whichever it is, it’s good to realise your mistake now rather than later. If you are currently in debt, read on to find out what mistake you could be making and seek to rectify them before it is too late.
- Not taking debt seriously
“What’s the problem of owing the bank some money? What can they do to me?” You may not see the effect now, but do you know that every bad debt you have goes into your credit report? (Credit Bureau Singapore)is the organisation that aggregates credit-related information amongst participating financial institution and presents a risk profile of a customer to credit providers. This helps credit providers to determine the likelihood of the customer repaying, thus enhancing their risk assessment capabilities. If you incur bad debts or are frequently late on your payments, this will affect your ability to take on loans/credit with banks in the future.
- Swiping credit cards too often
Credit cards can be a great payment tool for the financially-savvy; not only do they offer convenience, smart users also use them to accumulate cash rebates, earn air miles and get discounts on their favourite merchants. The smart way to use them is to ensure that you repay the entire bill at the end of the month. However, getting your first credit card may be such an exciting milestone of your life that you forgot that you actually need to pay off the debts.
- Paying only the minimum payment every month
Whether it is your credit card bills, utilities bills or loan repayments, allowing your bills to rollover months on end forms a really bad habit since the high interests tend to snowball quickly. Before you know it, you may find it impossible to clear your debts. With regards to loans, if you do not incur early repayment penalties, it is always a good idea to repay more than the minimum so that you can get out of debt as quickly as possible.
- Neglect the importance of a monthly budget
The millennials of today tend to embrace a “You-Only-Live-Once”(YOLO) mentality which increases the likelihood of one living paycheck-to-paycheck. While you are young, you may not have much financial responsibility to take care of, but this will quickly come as time passes and it’d then be too late for you to realise that you have accumulated no wealth all these years.
It’d be good to start off with a monthly budget that takes into account a savings component and help you ensure that your spending on different things stays within an acceptable limit.
- Not bothering to save or invest
If you are living paycheck to paycheck every month, you’d hardly have any time to think about saving money or growing your wealth. This most likely means that you’ll never have the means to buy a house, a car or even live comfortably during your retirement. If you want a life of misery in the future, feel free to live with your current YOLO attitude. But if you want to ensure you have a roof over your head, not fall short of medical expenses and build a family of your own in the future, then you need to start putting aside money for saving and investing.
If you haven’t done all these yet, it’s not too late to start. It’s always better to be late than never!
