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Author: Ravi Philemon
It may take simple discipline to get out of a financial crunch without adding on to your debt.
By: Hitesh Khan/
Many families in Singapore struggle every month, working hard to make ends meet. Consumers who are facing a financial crunch and run short of money before payday probably cannot afford to borrow from conventional lenders. High cost personal loans that must be repaid on the next payday do not usually solve the financial crisis either.
Coping with pressing financial crunch without adding more debt takes effort and may require creativity, but can save you a lot of money, worry, and stress.
Here are 5 tips to deal with financial crunch:
1. Build an emergency fund to deal with financial crunch
Build a $500 or more emergency fund. Although money may be tight, we all need an emergency savings nest egg for unexpected bills or ups and downs of income and expenses. Start by having a small goal, such as $10 per pay day.
2. Develop a household budget
Developing a household budget is a way to keep track of income and expenses and to determine ways to save. Take stock of your income and expenses. Work out a realistic spending and savings plan with your family. Set aside some money every payday for big bills that come due once or twice a year. Plan ahead for budget-busters, such as festive gifts, birthdays and vacations.
3. Get credit counselling help
When done well, credit counseling can be a useful tool for consumers in financial crunch or to help families plan a budget. Traditionally, credit counseling agencies have offered a range of services, including financial and budget counseling and community education, as well as debt consolidation plans, known as debt management plans.
However, consumers should be aware that there have been some problems in the credit counseling industry, including improper advice, deceptive practices and excessive fees. Credit counseling is not for everyone. Evaluate all of your options before entering credit counseling, including developing a better spending and savings plan, negotiating individually with creditors.
4. Cope with cash flow without borrowing
Before you are late on a rent, mortgage, or utility payment, speak with the creditor. For non-interest bills, such as utility or telephone bills, ask about making payment arrangements. Ask to delay payment until your pay arrives or set up a repayment schedule that stretches out payments. Make sure to ask about fees or extra costs for extended payments. Be mindful that getting behind on paying for loans and bills may damage your credit score.
To deal with financial crunch, you may also ask your employer for an advance on your next pay.
This is not a loan and will reduce the amount of your next pay. Employers that make advances may limit how often you can do this. Delay expensive items until you have cash. Use some of your emergency savings instead of borrowing, but repay yourself. Apply for assistance programs, such as those run by community development councils. You should also take advantage of local charity, religious, or community programs that help families make ends meet in a crisis.
Those in a financial crunch, should also work overtime or pick up extra work to bring in more income. You could also sell something of value that you no longer need so that you get true value for the item.
5. Find less expensive money
Those in financial crunch may ask your friends or family to lend you money. Remember that a written agreement to repay the loan can help avoid family strife later. Licensed money lenders may charge no more than 4% interest per month on the amount you have borrowed.
But before you approach a licensed money lender, consider other alternatives, such as the various financial assistance schemes offered by various Government agencies. As you are legally obliged to fulfil any loan contract you enter into with a licensed moneylender, consider whether you are able to abide by the contractual terms, bearing in mind your income and financial obligations.
Borrow only what you need and are able to repay. Be mindful that if you are unable to meet the contractual terms, the late payment fees and interest payment will be a financial strain not just on yourself but also on your family. The law requires moneylenders to explain the terms of a loan to you in a language you understand and to provide you with a copy of the loan contract. Make sure you fully understand the terms of the contract, in particular, the repayment schedule, the interest rate charged and the fees applicable.
Regardless of how much of a financial crunch you are in, you should always shop around different moneylenders for the most favourable terms. You should not rush into and commit yourself to a loan until you are satisfied with the terms and conditions.
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