Spend wisely to avoid the debt trap

ACCORDING to media reports, a total of 94,408 Malaysians have been declared bankrupt by the Insolvency Department since 2013. More than 90% of them were declared bankrupt due to failure in settling their loans with financial institutions. Official statistics also show that 70% of bankruptcy cases involved individuals between 35 and 45 years of age.

In 2015, an astounding 350,000 people were at the brink of bankruptcy with an accumulated debt of RM337mil until they were saved by the Credit Counselling and Debt Management Agency. Many had no way out and were contemplating suicide but the agency counselled and helped them to manage their income. It also recommended suitable jobs for those who were unemployed.

Fresh graduates and young professionals who earn reasonably well were not able to make ends meet because bank loans and debts took up a sizeable chunk of their monthly income. The two biggest items of their payroll were housing and car loans.

And at the rate the prices of properties and cars are escalating, many are struggling to settle their loans.

The rising household debts due to ballooning prices of goods and services and unpaid credit card bills have put many in serious financial difficulty.

Bank Negara’s move to introduce measures to curb excessive accumulation of household debts by reducing the housing loan repayment tenure and personal loan repayment tenure has only made matters worse.

Poor self-control in spending and prioritising wants instead of needs are the most common causes of failure in financial management.

Lack of financial management knowledge and education coupled with expensive lifestyle choices also put the younger generation in financial difficulties.

Spending trends have changed, especially with the availability of credit cards. Previously, people only spent on what they could afford but credit cards are encouraging many to spend money they do not have.

Credit cards have been identified as one of the reasons why the young go broke and bankrupt. If they are late on their credit card payment, the interest alone can throw them into a financial abyss.

Young people need to realise that the credit card is a payment facility for their convenience and not a tool for spending money they do not have.

In our materialistic society, people tend to buy things they do not need with money they do not have just to impress people they do not even know.

It would be wise to earn before you spend, and not spend before you earn.

Credit cards should not be issued to everyone, and the minimum wage to own a credit card should be raised. Individuals should not have more than one credit card.

Many young couples also spend lavishly on elaborate and grand weddings and honeymoons that make them both debtors just as they start their married life.

Loans that have been taken have to be paid with interest. With a couple of loans to settle, this can be a recipe for bankruptcy.

The young should be prudent in spending and start saving. They should be equipped with financial management knowledge that will give them vital know-how on how to handle money properly.

Hopefully, Malaysians involved in bankruptcy cases would meet up with the Credit Counselling and Debt Management Agency to work out solutions for their debt problems.

In the wake of rising cost of living, young Malaysians need to manage their finances and draw up a monthly budget to help them live within their means.

They need to identify their fixed expenses such as car and housing loans and their variable expenses such as utility, petrol, repair and medical bills.

They need to practise a lot of discipline and maturity in managing their income and living within their means.

A lot of heartache over financial matters can be solved if they follow their head and not their heart when spending money.

SAMUEL YESUIAH Seremban