According to recent reports, around 47% of Malaysian youths have credit card debts. Reports also suggest that civil servants spend more than half of their monthly salaries to repay debts, especially those who earn less than RM5,000 per month. That’s why there is an urgent need to create financial awareness amongst Malaysians to repay their debts effectively.
1. Prioritising the Repayment of a Wrong Debt First
There are two methods to pay off debt – the snowball method and the avalanche method. While in the snowball method, you repay the smaller debts first and then the larger ones, in the avalanche method you pay debts with high-interest rates first. By paying off the smaller debts, you will have the peace of mind that your debts are reducing. On the other hand, by repaying debts with a higher rate of interest first, you will just have the smaller ones remaining later which will be easier to finish off.
No matter which method you choose, you need to ensure that you analyse the different debts you have and see which one will help you in the near future. For instance, let’s say you have taken both a home loan and a personal loan. You could either finish off the personal loan debt first as it comes with a higher rate of interest or the home loan that comes with a longer tenure.
2. Defaulting on Payments
When you fail to make your repayments on time, it affects your credit score adversely. Continuous defaulting may put you in the bad books of the financial institutions. Try to make payments on time. Also, paying more than the minimum amount due will help you build a healthy score.
3. Accumulating Debt
Sometimes despite having debts, you tend to use your money impulsively. You cross your card’s credit limit, default on payments, and apply for new credit cards. When you receive your monthly income, spend on what you actually need and make some sacrifices. Yes, discount sales and exclusive offers are quite tempting, but you need to make a choice if you need the items urgently or not.Don’t apply for more than one or two credit cards; that’ll help keep your spending on check.
4. Not Maintaining Any Savings
Spend your money wisely to accumulate enough money for the future. Invest in fixed deposits and other wealth-building schemes to cement your future. Make sure to open a savings account simultaneously for emergency funds.
Another common mistake people make is choosing the wrong loan scheme. When you compare the best available personal loans in the country, you will know which one comes with a high finance margin and a lower rate of interest. You need to do your homework and choose a loan which is right for you.
The same thing applies to credit cards. When you apply for a credit card, look for ones that come with low-interest rates. You could also opt for cards that suit your lifestyle. For instance, if you are a low-income earner, look for the cards suitable for low-income earners. Or if you travel overseas very often, look for cards that give you travel-related benefits.
By following the above tips, you will be able to meet both your short-term and long-term goals in spite of having debts.