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Planning a strategy to get out of debt

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Paridhi Jhunjhunwala
Paridhi Jhunjhunwala, Associate at Kristal.AI
Level 6. Master
Answered 1d ago
Hi! You are basically delaying the repayment of the loan to make investments with $500. If you can earn a higher return that the cost of borrowing, you will benefit from delaying the repayment of the debt. However, this option bears a high risk as the return on investments may not be adequate and you may up with a loss. So in case you are sure that your investments can earn a good return, you can continue, else you might want to rethink. I work at Kristal.AI, and it's my passion to evaluate various upcoming investment opportunities. Hope you find this helpful!

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Zen Rogue Xuan
Zen Rogue Xuan
Level 6. Master
Updated on 12 Sep 2019
For 3 years, I would suggest you put into a single premium short term endowment, which typically has a minimum premium amount. Below is a list which I saw posted in Seedly's FB group recently !
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A) OA to SA? 1) Money transferred from OA to SA is one-way, you cannot reverse it later. 2) Are you sure of the future that there are no need for your OA for housing purposes, education loans (not just for you but your future kids) etc For that reason, I prefer not to transfer OA to SA. 4% return can be obtained relatively easier with long term stocks or funds. B) To use cash or CPF-OA is another discussion. Some may say cash is better because CPF-OA you are required to pay the interest plus 2.5% back to yourself. I don't see it as negative and I will prefer CPF because CPF money is very difficult to use, and cash is more precious for liquidity and easy available for other opportunities. C) HDB loans or bank loans. No doubts, bank loans. Lower than the current 2.6% HDB loan and quite reasonably sure that it will be below 2.6% for the decent future. Given your loan is the largest at the beginning few years, you can be sure bank loans will have the lowest expense compared to HDB loans.

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Hi, I hope your situation has improved since Sept 2018. (Apologies, I can't seem to do a line break, so this would appear as a wall of text.) My suggestions: 1) You need a steady source of income now for living expenses as well as to pay off debt (so that it doesn't snowball and get bigger). Is your self- employed income currently consistent and sufficient? If not, you may want to consider becoming an employee first to manage your expenses and debt as well as to build a buffer before going back to be a financial adviser. 2) Pay yourself first despite these circumstances. Set aside an amount immediately each time you receive an income, and start building your contingency buffer. 3) Try to work out a lower interest repayment plan with the banks for your credit card debt. 4) Trim your spending to the bare essentials. Find ways to save whatever you can and whenever you can. Every cent truly counts! 5) Track your spending and saving religiously so that you are acutely aware to ingrain these new habits, and can also monitor progress. 6) If you have any insurance that has cash value, check if you can take a policy loan. Interest is usually much lower than credit cards. Then pay off your credit card with the highest interest first. (Set a timeline to pay back to your insurance policy too, so that in the long run the cash value and protection value does not suffer.) 7) Pay off more of the debt that charges higher interest, with credit from those with lower interest. 8) Be patient, you will get there. Beware of any get rich quick / clear debts fast scheme. Through this journey you will develop new habits that will stand you in good stead for your financial success!

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By clearing your loan early, you're immediately getting a guaranteed 4.75% return minus any early repayment fee if any. So I'd make sure you clear the loan first, then make sure you have your emergency fund set up of at least 6 months of expenses and then go an invest.

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Great to hear that! For the title deed, it’s advisable to keep it with HDB. In the event if it’s misplaced or lost, you will have to pay legal fees up to $1,000 depending on the size of your flat and the process is gonna be very tedious. Some things to take note: 1) You have to make an appointment for the redemption of the loan with HDB one month in advance. All owners must be present at the appointment with NRIC. 2) You will need to pay the registration and conveyancing fees for the Total Discharge of Mortgage (TDM). Registration fee (only for lease-issued cases): $38.30 Conveyancing fee: 1-room $23.50 2-room $35.30 3-room $47.05 4-room $58.85 5-room $70.60 Executive $82.35 After the redemption of the loan, HDB will send your parents a letter to collect the title deed in 3-6 months. You can choose to ignore it if you want to keep it with HDB. Hope it answers your question!

Loans

Both of these items are under your control in some sense. Basically you get approval for the line (say can borrow up to 500k) but if you draw down only 400k then you do not disburse 100k so the cancellation fee is 1% of 100k. Prepayment - on disbursement, you would have a repayment schedule with the monthly repayments. On adhoc basis you can still prepay lumpsum in addition to that - so for example if you have 20k you want to use to repay loan out-of-schedule then there will be a fee of 1% of 20k.

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You mean the tution fee loans - the bank is acting as a third party assisting you with financing the studies - so there isn't extra charge from educational institution if that is what you mean.

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Junus Eu
Junus Eu
Top Contributor

Top Contributor (Oct)

Level 8. Wizard
Answered on 23 Jul 2019
Quick question - how did they amass this debt? Was it to pay for household expenses and to bring up their children? Re: the refusal to downgrade to HDB because of a face issue - when push comes to shove, would your parents still insist on downgrading to a HDB? Maybe it would help to mention that in the grand scheme of things, the family's harmony and emotional wellbeings are much more important than 'face'. If moving to a HDB would result in a significant amount of savings, I personally would strongly pursue that route.

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Hi anon, I would set a $20K OA buffer in order to maximize the 1% additional interest. Investing it is not recommended, I would rather you invest your cash first. If you can do a partial payment to reduce the interest paid, that does help in the event you wish to sell your flat before 55 and have to pay back the accrued interest, if not, there's not much of a need to do so if you intend to make this your permanent home. Your CPFIS of $42K, is that via OA or SA? I don't recommend investing SA monies due to SA's high interest.
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