The BNM (Bank Negara Malaysia) has reported that more than 3,400 people between the ages of 20 and 30 have sought help and counseling from the Debt Management and Counselling Agency (AKPK).
Studies have indicated that Malaysians are spending more compared to the last decade as shopping has become easier than ever.
From strategic in-store merchandising to online shopping, coupled with various payment options, it is very easy to forget your spending limits.
Once you are in debt, it will be a severe problem if you don’t get out of it fast. The best thing to do is to avoid getting into it in the first place. Always keep in mind how much you have in your account and what you can spend.
Top 10 tips to avoid bad debts
Here some of the important tips to avoid getting into a bad debt:
1. Give priority to your high-interest loans
If you already have a bad financial backlog, the most important thing is to give it a top priority until you have completely paid back the loan.
Unnecessary waiting will worsen the situation and increase the chances of getting into bad debt.
2. Understand the root cause
If you are already struggling with a bad financial situation, the best thing to do is understand its root cause. Think about why it happened in the first place.
Was it a failure in business, a sudden health issue, or a pay cut? This will help you to find a workable solution to solve the problem.
3. Seek Help
Sometimes seeking help to resolve a financial issue can help solve the debt problem quickly.
If you are single and young, you can ask your parents for some good money management advice. They might also be willing to help you by giving you some financial assistance.
However, by seeking help to bail you out the financial burden, you might lose some valuable opportunity to improve your financial intelligence that might be helpful in the long run.
On the other hand, if you are in a relationship, you can work on the issue as a team. Being open-minded and transparent will help you build a stronger bond while you clear off the financial problem and help you get out of bad debt.
Additionally, you could seek the help of AKP (Agensi Kaunselling dan Pengurusan Kredit) or a Credit Counselling and Debt Management Agency, established by Bank Negara Malaysia (BNM) in 2006 under BNM’s 10-year Financial Sector Master Plan.
The main services include:
- Free counseling and advice on financial management.
- Debt management program to assist Malaysians to regain financial control.
- Financial education for better credit management skills and developing the talent to handle money responsibly.
4. Cut down on spending
Most often, people spend money on unnecessary things, and they are barely aware of it. Make a list of all the things that you find unnecessary.
Once you are done, try to reduce unnecessary spending. This will help you to save money in the long run.
5. Have an emergency fund
Sometimes unexpected situations can happen in life where you will have large and unforeseen expenses.
If someone close to you had undergone such a situation, you would come to know how difficult it was for them to find the money or how happy they were as they had an emergency fund.
Emergency funds help you to:
- Live for a few months if you get into an unexpected financial situation such as losing your job.
- Financial experts believe that you should save at least three months worth of salary as an emergency fund.
You can use your emergency fund during emergencies such as unemployment, unforeseen accidents, sudden health issues, etc.
This will act as a shield to protect you from getting into debt during unexpected financial blows.
6. Automate your payments
This might sound quite simple, but if used wisely, it can be a powerful tool to not only improve your finances but also boost your credit score.
Let’s accept the truth. Nobody likes late payments, and sometimes it can harm your finance through late fees and bad credit scores.
You can automatically schedule your payment to be made on a particular date every month. Additionally, there are several online tools to send you notifications when making a payment.
7. Use cash payment if possible
Let’s imagine a situation in which you are at a shopping mall planning to buy a product that you don’t need.
If you are swiping the card, you might not consider the amount of cash you are paying. On the other hand, if you are paying with cash the moment you open your purse and physically touch the money, you will be confronting yourself at a psychological level whether to make the payment or not.
Studies have shown that people using cash to make payments are likely to spend less than those who are using credit cards.
8. Make use of budgeting apps
Budgeting apps are applications that can help you to track your spending, budgeting, and earning.
These apps can do immense help to someone who has less financial knowledge.
Some of the benefits of using budgeting apps include:
- Effectively organizes your finances.
- Sets up alerts for financial deadlines.
- Helps you to effectively manage your finances.
- Has a tighter grip on your spendings.
- Makes fewer mistakes..
- Have great confidence in your financial decisions
9. Get rewards for your spendings
A lot of major credit card companies offer incentives to their customers in the form of rewards. Cash rewards give you an option to:
- Cash in your rewards as a direct deposit in your bank or
- Redeem your rewards as a credit to your account
- Get fit cards with the merchant’s partners
You could also get travel rewards at a discounted price while booking airline tickets or hotels.
10. Invest your money
Investing your money can help you grow it and meet your financial goals. Say, for example, your child’s college education, early retirement, or even buying a new property.
When you have a long term financial goal of ten or more years, it makes sense to invest your hard-earned money.
Before investing, you can seek the help of financial experts to have better guidance.
Getting into a bad financial situation can be physically and mentally tormenting for anyone. Just like the old saying, prevention is better than cure.
In this article, we have mentioned some essential tips to avoid getting into bad debt.
At times you might end up in a bad financial situation due to sudden unexpected reasons. In such a case, you could seek the help of Agensi Kaunselling dan Pengurusan Kredit for free financial guidance.Also read our article on: “ Bad Debts – What you should know about Collection and Litigation”