Saturday, February 26, 2011

8 Reasons Why You Have Unmanageable Debts


The following are the reasons why people seek help from Credit Counseling and Debt Management Agency of Bank Negara in Malaysia:

1. Poor personal financial management 26%
2. Huge medical expenses 25%
3. Credit card misused15%
4. Failed in business 13%
5. Out of a job 11%
6. Other reasons 6%
7. Death of a bread winner 2%
8. Mistakes in investing 2%

Three words describe the debt situation: greed, lifestyle and unavoidable circumstances.
However, there are effective ways to avoid debt:

Poor personal financial management: A budget is the key to personal finance. The aim is to allocate your income in such a way to meet all your monthly expenses and include an amount for savings. The whole idea is to live within your means and avoid debt.

Huge medical expenses: The first step is to take preventive measures by keeping fit and maintaining robust health. Eating a balanced diet, exercising regularly and having sufficient sleep are essential for your well-being. The next step is to take up adequate medical insurance coverage. In case you are seriously ill or as a result of an accident you can reimburse your medical expenses and get compensated for your loss of income while you are in hospital or recuperating at home

Credit card misused: It is a credit card, but its main purpose is not for you to purchase items on credit. It is only for your convenience and nothing else. It means you must pay fully and promptly upon receiving the monthly credit card statement. You avoid paying interest on the outstanding amount when you do not pay just the minimum amount and you also avoid late payment charges. When you are in debt, it is very difficult for you to get out of debt. That is the reason why so many people seek help for debt management.

Failed business: There is always an element of risk in any business ventures. The prudent thing to do is not to put all your money in it. Set aside a contingency fund in case your capital is wiped out in a failed business attempt.

Out of a job: Take steps to secure your job. One effective way is to acquire more skills. In fact, employers are looking for staff with multi-skills to reduce cost. With more skills, you are more valued at the workplace and less likely to be laid off.

Other reasons: One of the things that you should not do for your good friend is to be a guarantor for his or her loan. When someone applies for a loan and the financial institution asks for a guarantor, it means the loan applicant is not qualified for the loan. As a guarantor, you are more likely to end up servicing the loan.

Death of a bread winner: An accident can happen at anytime. The wise thing to do is to get sufficient insurance coverage against death due to accidents and critical illnesses. The proceeds can then allow family members to carry on living without financial difficulties.

Mistakes in investing: The mistake is about greed. Instead of investing for the long term, you want huge gain in a short time because the stock market is on an upward trend. Apart from your own savings you also get a personal loan from a bank and dump all your money in the stock market. However, a terrorist attack somewhere triggers a market slump. You continue to hold on to your portfolio, but there is no sign of recovery and you have suffered a huge loss and owe the bank a substantial amount.

Live within your means, never be in debt, and by husbanding your money you can always lay it out well. But when you get in debt you become a slave. Therefore I say to you never involve yourself in debt, and become no man's surety. If your friend is in distress, aid him if you have the means to spare. If he fails to be able to return it, it is only so much lost.

Andrew Jackson

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