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6 Ways to Reign in the Credit Card Debt in Malaysia

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Credit cards have become a staple in one’s life with more and more people having access to cards and more retailers accepting cards, it truly has become a universal currency. When credit cards first came out a lot of people had a romance with the notion of ‘swipe now pay later’ but more often than not people tend to forget the pay later part and continue swiping only to find themselves knee deep in debt. It seems that consumers are now falling back into this love hate relationship with credit cards and mismanagement of cards has become the norm. According to a survey carried out by Card Hub in 2015, the average household has a credit card debt to the tune of a whopping $7879. They not only managed to put a number to what everyone already knew but managed to get their prediction of aggregate consumer credit card debt touching $900 Billion spot on. In fact, to make matters worse, the debt exceeded this amount and actually stands at $917.7 Billion as of 2015. The numbers have reached a veritable tipping point which would only result in an exponential increase in number of defaulters that would only serve to restrict available credit limits

But there is more than just worry about having a repeat of 2008’s credit crisis. In fact the credit card debt seems to have grown year over year with $71 Billion coming in 2015 alone of which $52.4 Billion was incurred during the last quarter. The credit card debt for 2015 was 24% more than what was witnessed in 2014. Credit cards as evil as they may seem are still a very useful tool and can work wonders during times of emergency but if the debt is too high or at a precipice then even a small charge such as a swipe for groceries can send the debt over the hill with no easy road back.

Below are a few key points to follow to reign in credit card debt

  1. Cut spending, both literally and figuratively:

    The only way to stop the debt from piling on is to make sure that no unnecessary charges are added onto the existing load. If you have multiple cards then do away with all but one of them and the one that is saved should not be used. You can get rid of these cards in whatever manner you deem fit, shred them, store them in a safe or lock them in your wardrobe or shoe closet. When getting rid of these cards, one shouldn’t officially surrender them. Doing so worsens the existing credit utilization ratio that will negatively impact what one can safely assume an already damaged credit score.

  2. Plan and execute a budget:

    This step that many people plan on as one of their many New Year resolutions is pertinent to getting out of debt. One should maintain a ledger that tracks every penny spent. Write down income on one side and expenses on the other and any leftover savings or extra income that comes your way should be redirected into the debt payoff fund.

  3. Assess the finances:

    when you are living from paycheck to paycheck or have to worry and think a million times before you buy a new tube of toothpaste it’s time for you to assess you’re spending. Is your lifestyle of worry and making ends meet a product of poor choices? Mapping out the spending and figuring out what can be saved up on is an invaluable tool to fight debt. Worse yet, even after cutting out unnecessary expenses, you find yourself still trying to make ends meet then how can you expect to pay off a huge debt. Debt can be decreased by either increasing your income or decreasing your expenses to increase savings. If expenses are too high even after cutting out all the unnecessary ones, it’s time to look for higher paying jobs or supplement current income through additional earnings.

  4. Savings:

    This step should have been done awhile back and if so then one can always dip into their savings to help ease the debt. If a savings account hasn’t been started or built up yet, then you should start putting together an emergency fund to meet any unexpected financial emergencies.

  5. Target the toughest ones first:

    Toughest debts do not necessarily have to be the largest chunk it could also be the most expensive. What one can follow is the avalanche method which targets the debt with the highest annual percentage rate or APR whilst making minimum payments on all other debts. When the first debt has been cleared, it’s time to concentrate on the second debt and so on. The debts with higher APR’s should always be tackled first since they are the ones that cost the most.

  6. Financial Windfalls:

    At times, spending financial windfalls such as tax refunds may not be the right thing to do. These should be considered as extra income and should be redirected towards the debt payoff fund. Even yearly bonuses or any monetary gifts from family and friends should be treated this way.

The numbers do not lie. Credit card debt is on the rise and its common place to find people with a certain amount of debt who are solely getting by making timely minimum payments but one should always make room for an unforeseen financial emergency and when that day comes it might send the debt over the edge. Hence it is imperative that cardholders try and reduce their debt as much as possible.

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