Financial pressures: A photo illustration of a person struggling with debt. Experts say we first need to understand how debt builds up.
IT’S that familiar story – you go on a tiny spending spree (or two, alright, perhaps three) and you’ve maxed out your credit cards.
The bills are piling up, but you’re not worried as you’re determined to settle it all by the end of the month.
But then, that’s what you’ve been telling yourself for the past six months!
Before you know it, you’re neck-deep in overdue payments. What do you do?
Don’t panic. Here are three simple ways to get out of debt.
Deal with it now
The first thing one needs to do is assess and prioritise their debt, said Success Concepts wealth and retirement planning consultancy chief executive officer Dr Joyce Chuah.
“Begin by evaluating your debt based on interest rates and loan amounts. Mortgage loans typically have the lowest interest rates, though they may represent the largest debt.
“These secured loans usually come with lower rates as they are secured by your property,” she tells StarBiz.
Chuah added that it is important for an individual to reflect on their debt journey.
“Understand how you accumulated your debt. Educate yourself on strategies to avoid repeating these patterns in the future and to immediately stop any detrimental habits now,” she said.
Have a budget plan
At this point, it’s also important to have a budget plan, said Jeremy Tan of financial planning consultancy, Excellentte Consultancy Sdn Bhd.
“Have a budget plan to understand your cash flow of income and expenses, including your debt level. Prioritise settling the debts by paying off the smaller ones, followed by debts with the highest interest rates.
“Set a goal and timeline with a plan to reduce the debts already incurred,” he said.
Additionally, Chuah said it would help to create a cash flow statement for yourself.
“Draft a cash flow statement to identify which expenses you can eliminate, thereby increasing your net monthly cash flow.
“This additional cash can then be directed towards paying off your prioritised debts. Also, consider boosting your income through part-time work or side gigs.”
Chuah also said one should take stock of their liquid assets and determine which can be quickly sold, to help pay down debt.
“Thoroughly assess what you own, as you might have overlooked valuable assets.
“This could include cash value in investments and investment-linked policies, equity in your mortgage, or funds available for redraw.”
If possible, one could also try seeking help from others, said Chuah.
“Enlist the help of a financial professional, trusted friend, or family member to hold you accountable in your debt-reduction efforts.
“They can assist in creating a strict budget and distinguishing between discretionary and non-discretionary spending. A professional can also help set up automatic savings plans to prevent future unnecessary expenses.”
Stop spending unnecessarily
When in debt, Tan said one should try to reduce their expenses to increase savings and simultaneously, allocate a larger portion to pay off the debts.
“Do not take on another debt to settle an existing debt, especially using credit card cash advances.
“If having too many credit cards is the source of the increasing debts, cancel the other credit cards and maintain a maximum of only two credit cards. Alternatively, use only a debit card and/or e-wallet instead of a credit card,” he said.
Chuah said an individual with debts should remove apps on their mobile phones or cancel subscriptions that promote unnecessary spending, to help maintain focus on debt reduction.
“By implementing these strategies, you can take meaningful steps toward managing and reducing your debt effectively,” she said.
