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Prioritise paying debts over other spending

A TOTAL of 292,447 people in Malaysia have been declared bankrupt up to June this year. Sixty per cent of them were aged between 18 and 44.

Selangor had the highest number of people declared bankrupt, at 72,153, followed by the federal territories (45,933) and Johor (40,052).

Poor financial planning, overspending on credit cards, bank policies and attitudes towards money are the main factors of high levels of debt among people.

Spending has now increased compared with the last generation because of credit cards. Society is going cashless, and credit cards will soon replace traditional cash transactions.

Furthermore, there are studies that show credit cards are a stimulus that causes more spending than normal cash.

Bank policy is another factor that contributes to bankruptcy at a young age. Banks are in charge of credit card benefits, the repayment policies and minimum criteria to qualify for a credit card.

Due to competition in the credit card industry, banks are making constant improvements and innovations to their credit card products to attract more customers.

Many young workers reported low confidence in their financial knowledge and management practices. Even well-educated people are not necessarily savvy with money.

Given the serious consequences of bankruptcy, people must do everything they can to avoid it. One of the ways is cutting expenses.

The primary goal is to dedicate as much money as possible to pay the debt.

They must eliminate virtually all unnecessary and discretionary spending, such as buying excessive clothing, dining out, and expensive hair dos.

Downsizing to a smaller house or cheaper car could be an option, provided their credit is good enough to get financing or approval for a lease.

Next, people should negotiate with creditors as soon as they realise they are unable to meet their monthly payments.

There is no guarantee, but in some cases, creditors agree to reduce interest rates, change the payment terms, or reduce fees.

One mistake many people make is not prioritising how they will pay their debt.

They must plan or budget to pay for necessities first, such as food, housing, transportation as well as children's education, before making minimum payments on the debt with the highest interest rate.

Lastly, people may opt for debt management services, like the Credit Counselling and Debt Management Agency, to provide financial education on the use of credit and basic money management. Financial advisers will work with people to develop a personalised debt repayment plan, in consultation with the financial service providers. All these services are offered free.

Bankruptcy may be one of the most possible options people have. However, before taking this big step, they should do everything they can to avoid it.

Through the tips provided above, we hope people can eliminate some of their debt.


The writers lecture at the School of Accounting and Finance, Taylor's University

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