Effective ways to avoid debt

According to the general manager (operations), Azman Hasim, of Bank Negara Malaysia’s Credit Counseling and Debt Management, there are three reasons why people over-borrowed – greed, lifestyle, and unavoidable circumstances. How do you take steps to avoid unmanageable debts?

Greed


• Gambling: Gamblers are no winners or else there will be no gaming outlets or they will be out of business. Don’t get involved.

• Get rich quick schemes: There is no way to make a quick and easy gain in a short time with your money. Don’t believe in such schemes. Even a solid business venture needs time and hard work to grow.

• Invest for the short term: The stock market is bullish and you decide to make a killing. You use your savings and even borrow more money from a financial institution. Initially, it looks good but a terrorist attack somewhere in another corner of the earth triggers a market slump. You decide to hold on but it is a downward slide all the way and it is too late to salvage the huge loss. It is a situation of investing too much, too short a time for too quick a gain, and at the wrong time. You are now in debt. Investment is for the long term.



Lifestyle


• Wants: Your wants are unlimited but your resources are limited. Every day you see new gadgets, new cars, a TV in 3D, and many more. Advertisements are luring you to spend and spend and your neighbors are trendsetters. Can you control yourself to spend less than your means?

• Credit cards: The fastest way to get into debt is to spend on your wants on credit, pay the minimum amount and incur interest at the highest rate. If this is not enough, get advances from your credit cards to spend even more. Can you manage your credit cards without getting into debt?


Unavoidable circumstances


• Accidents and illnesses: Accidents on the road can be prevented when you drive with care. Illnesses can also be avoided when you look after your fitness and health. You can also take up insurance coverage to cushion the blow of an accident or a critical illness. An emergency fund is more effective to meet such unforeseen circumstances.

• Jobless: The smart way is to acquire more skills so that you will be more valuable in the workplace. In case of retrenchment, you are the last one to go. In the event that you are jobless, an emergency fund will get you through a difficult period until you get a new job.

The key to avoiding debt effectively is your preparedness and discipline.