According to the insolvency department, the total number of bankruptcy cases in Malaysia from 2018 to last December stands at 49,133, the primary causes of which include non-payment of personal and business loans.
Indeed, financial difficulties owing to job losses, medical emergencies, or business failures can lead to debts that spiral out of control. As such, debt management is crucial to help you avoid financial instability, stress, and the problems caused by excessive or unmanageable liabilities.
People who are in debt may feel overwhelmed and stressed, which negatively impacts physical and mental health. In addition, debt restricts financial freedom, limits your ability to make big life decisions, and prevents you from achieving long-term goals.
Furthermore, high debt or missed payments can negatively impact your credit score, making it harder to apply for loans, credit cards or mortgages in the future.
In short, this is a skill that can help you avoid falling into a debt trap, wherein you struggle to make payments, default on loans, or face additional charges and fees. Those with high debt find it difficult to save for retirement, make large-scale purchases, or invest in their education or business.
Conversely, by managing debt effectively, you free up more money for your long-term objectives, making them easier to achieve.
4 ways to manage debt
• Budgeting
The first step in debt management is to create a budget, which lets you see where your money goes and identify where to save more. Set aside a specific monthly amount to pay your debts and reduce the amount over time.
• Debt consolidation
This means combining multiple debts into a single loan. Consolidation can make managing debt easier as you only have to make one monthly payment, rather than multiple payments with different interest rates.
However, debt consolidation is not always the best option for everyone, so consult a professional before making any decisions.
• Debt snowball method
With this method, you pay off your smallest debt first, then utilise the money you would have used on that debt to pay off the next smallest amount, and so on.
It’s an effective approach that gives you a sense of accomplishment and momentum as you pay off each debt.
• Negotiations
If you are having trouble paying what you owe, try to negotiate with your creditors. You may be able to work out a payment plan or work out a lower interest rate, helping you reduce your debt over time.
Getting professional help
A financial planner can give you personalised advice and guide you on how to effectively manage your debt. They can also help you create a debt-management plan tailored to your needs and goals.
Here are the benefits of hiring a professional planner:
• Expertise
Financial planners have the expertise and knowledge to help you effectively manage your finances. They can advise you on the best debt-management strategies and help you devise a plan that works for your unique situation.
• Objectivity
A financial planner can look at your finances from an impartial point of view and help you make decisions in your best interest.
• Accountability
Working with a financial planner can help you stay on track with your debt management. They can monitor your progress and adjust as you go to ensure you make steady progress towards becoming debt-free.
This all said, it is crucial to also consider some key factors when choosing a financial planner. Here are some considerations:
• Qualifications and experience
Before hiring a professional, check their qualifications and experience. You want someone who is certified by a reputable organisation or has a proven record of helping clients successfully manage their debt.
• Fees
Some experts go by an hourly or flat fee, while others charge a percentage of the debt they help you manage. Make sure you fully understand the fees before hiring a professional, lest you ironically incur more losses.
• Services offered
Different professionals offer different types of debt-management services. Some focus on consolidation, while others specialise in negotiating with creditors.
Understanding a professional’s specific services is essential to ensure they meet your needs.
• Reputation and references
Before hiring an expert, check their reputation and references. Search online for reviews and testimonials, or ask for references from previous clients to get a better idea of his or her track record and quality.
• Compatibility and communication
Finally, it’s important to choose a financial planner you enjoy working with, who can communicate clearly and effectively.
You should feel comfortable discussing your financial situation with them, and be confident they will work with you to create a plan that helps you attain your goals.
This article was written by Norsalina Aisyah Salim for MyPF. To simply and grow your personal finances, follow MyPF on Facebook and Instagram.