Debts Types in Singapore | Good & Bad Debts in Singapore

Credit Cards | Education Loans | Home Loans | Loans

We were probably taught as children that debt is bad and should be avoided at all costs. The truth, however, is more nuanced. We are “borrowing” every time we swipe/tap our credit cards.  And unless you are filthy rich, you probably can’t buy a house or a car in Singapore in cold hard cash. In this blog, we discuss debts types in Singapore. Read on to find out how to avoid bad debts.

Are all Debts Bad?

As a result, debt is not inherently evil. While all debt must be paid off at some point, it is critical to prioritize paying off bad debt over good debt. We show you how to get a bird’s-eye view of all your loans. And figure out which ones to pay off first. The most common types of debt in Singapore, as well as the approximate interest rates charged, are listed below. In general, you should pay off your debts in the order of highest interest rate to the lowest interest rate. However, it is also critical to understand the distinction between good and bad debt.

Good Debt & Bad Debt 

Good debt creates an opportunity that more than pays for itself. For example, if I borrowed $15 million to build a condo and then sold condo units for a profit of $25 million, that would be a good debt. Education loans, home loans, business loans, and debt consolidation plans are other examples of good debts (if managed properly).

Bad debt is never more than a liability. For example, if I break my leg and need to borrow $500 for treatment, the best outcome is that I am able to repay that $500. Other examples include using your credit card to purchase a luxury handbag that is out of your price range and taking out a car loan to purchase a flashy car solely to impress. Credit card debt, in particular, should be paid off as soon as possible. Unless you hit Toto, you probably shouldn’t try to pay off your mortgage in one fell swoop.

Debts Types in Singapore:

Debt owed to friends and family (possibly 0%, but…)

When you’re out of money, the first zero-interest loan you’ll probably be able to get is from your friends and family. If it is a one-time transaction and you are able to repay on time. Also, it may be acceptable. Unfortunately, if you do not repay it promptly, you run the risk of damaging important relationships.

Credit Card Instalments at 0% (0 % if you pay on time)

Because you are not paying interest on the money you are borrowing, 0% credit card instalments appear to be a good idea. However, if you miss your monthly instalment deadlines, you may be charged processing fees. This can range from 3% to 5%, as well as late payment fees. Try not to rely on these for every purchase. If you use 0% credit card instalments for everything. For instance, from your wedding ring to your new laptop, refrigerator, the monthly instalments can really add up and affect your cash flow. It can push you into debt for your other expenses.

Singapore Home Loans (1.2% to 2.6%)

This is a necessary type of debt because, in the end, you need a place to live, and renting is not a financially sound option in Singapore due to exorbitant rents. You can still be smart about getting the best home loan in Singapore. By doing some comparison shopping before signing up for a loan, understanding the differences between home loan packages. Moreover, refinancing on a regular basis to keep your interest rates low.

Singapore Education Loans (2.5% to 5.39%)

There are several kinds of education loans. In Singapore, you can enrol in the CPF Education Scheme (2.5%).  That allows you to borrow money from your parents’ CPF to cover the full cost of your course fees. Then there’s the MOE Tuition Loan, which has no interest while you’re studying. Also, it allows you to work as a private tutor to supplement your income while repaying your loan as you go. If neither of these options is available to you, you must obtain a bank education loan. Interest rates have risen, rising from 4.38% to 5.39%. So, is a student loan a good or bad debt? It all depends on your beliefs. Some people believe that a degree is no longer required for success.

Singapore Business Loans (2.55% to 11%)

Every company requires working capital. You’ll need money for office space, employees, marketing, and so on. One of the worst things you can do is use your own money to pay for everything all at once. If you do, you’re about to discover that the most expensive business expense is optimism. Loans used wisely ensure that even if the business fails, you will only be paying a manageable amount each month. However, if you emptied your bank account, you will be living on credit for months after the business fails, and you will have to work twice as hard to recover. Furthermore, the loans may enable your company to do something that will more than repay the loan. So, it is potentially a good type of financing.

Debt from Credit Cards (25% to 30%)

This is one of the most expensive types of debt you could incur, second only to illegal loanshark loans. Credit card debt can quickly spiral out of control because you are charged interest not only on the money you’ve spent but also on the interest itself. Even if you pay the bare minimum each month, your debt can quickly spiral out of control. As a result, never use credit cards for discretionary spendings such as clothing or entertainment. Even for necessities, find other ways to pay for them if at all possible, even if it means eating instant noodles for a month or begging your boss for a salary advance.

Plan your financial management wisely, now that you know about the debt types in Singapore.


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