Is Debt Right for You

Why are you borrowing?

Borrowing money for important things like buying a home may be unavoidable. But getting into debt is also a major responsibility. Too much debt can easily get us in trouble.

Avoid the debt trap by controlling how much you borrow. Even if you qualify for a bigger loan, ask yourself whether you really need the item you are buying and whether you can really afford the debt repayments (on top of all your existing debts and expenses). Consider buying it another day, perhaps after saving up for some or all of it first. Interest charges and the extra you pay in instalment plans over time can add up to a lot more than you think.

Before you borrow, consider the following:

How much should you borrow? How are you going to repay the loan?

Only borrow an amount that you are comfortable repaying. Do not be tempted to borrow more even if you qualify for a bigger amount.

Every loan repayment must be paid in full and on time, even if your personal circumstances change, for example, if you lose your job, you face a wage or salary cut or your spouse stops working.

Check your budget to see how much you have left for the debt repayments after meeting all your monthly expenses, borrowings and savings. Build in some allowance that your expenses will go up over time. Do build in some buffer if you have a floating rate loan, in case interest rates go up.

Make sure you have sufficient savings to meet ongoing expenses and debt obligations just in case you suddenly find yourself without an income for a period of time. If you have taken out a secured loan and the value of the collateral falls, you must be prepared to pay down part of the loan or provide more collateral.

As a guide, your total monthly debt commitments (e.g. mortgage payments, car payments and credit card payments) should not exceed 35% of your gross income. For example, if you have a monthly gross income of $3,500, your total monthly debt (including mortgage payment) should not exceed $1,225 ($3,500 x .35).

How much are the repayments?

Before you borrow, ask for a repayment schedule so you have an idea of the total borrowing costs (including total interest payable).

But remember, interest rates can go up and even small increases can make a big difference in the total amount you pay. This is important if you take out a floating rate loan. Do note that generally, for the same amount borrowed, the total amount of interest payable for a longer term loan will be higher than that for a shorter term loan.

See below how much you can save by taking a shorter term loan. Do consider your ability to meet the monthly repayment when choosing the loan tenure.

 $50,000 car loan at 6% interest per annum monthly rest  
   5-year loan  6-year loan 7-year loan 
Number of payments (A) 60 72 84 
Monthly payment (B) $967  $829  $731 
Total payment (A) x (B) $58,020  $59,688  $61,404 

Interest saved by taking the shorter term loans instead of the 7-year loan

$3,384 (i.e. $61,404 – $58,020)  $1,716 (i.e. $61,404 – $59,688)



✔ Before you borrow, see if you can save an amount equal to the expected monthly loan instalment.
✔ Draw up a budget to monitor and manage your spending. Include your total monthly debt payments. Adjust your spending patterns and avoid taking on more debt than you can afford to repay.
✔ As a rough guide, do not allow your monthly debt commitments to exceed 35% of your gross monthly income.
✔ Review your debts regularly. Avoid multiple sources of credit. It is easier to keep track of repayments when you have fewer credit facilities.
✔ Pay every instalment promptly and in full to avoid interest and penalty charges.
✔ If you are unable to make payment on time or in full, inform your lender and ask for help.

Read here for more suggestions on managing your debt.


Worksheet to compute your maximum debt load

As a guide, your total monthly debt commitments (e.g. mortgage payments, car payments and credit card payments) should not exceed 35% of your gross income. For example, if you have a $3,500 monthly gross income, your total regular monthly debt (including a mortgage payment) should not exceed $1,225 ($3,500 x .35).

Use the worksheet below to determine the maximum amount of monthly debt payments (including your mortgage payments) that you can afford.  

Monthly gross income (A) $
Rough percentage guide (B) X 0.35
Maximum monthly housing and long-term debt payments =

(A x B)


Remember, 35% of your gross monthly income is just a guide. The actual proportion % may be a lot less if your monthly outgoings (savings and expenses) are high.

Read more on the types of loans available.


The above information is prepared in collaboration with the Ministry of Law, Association of Banks in Singapore, Credit Counselling Singapore, Credit Bureau Singapore and DP Credit Bureau.