By Norsalina Aisyah Salim
Managing debt continues to be the most sought-after topic as many Malaysians struggle with it. Learn some of the ways to have a better debt management.
Debt management is an important aspect of personal finance that everyone should know, especially in Malaysia, where debt is a common problem for many people.
According to the latest statistics from the Malaysian Insolvency Department, the total number of bankruptcy cases administered for the period of 2018 to December 2022 was 49,133.
The main causes of bankruptcies in Malaysia include personal loans and business loans.
Many people in Malaysia find themselves in financial difficulties due to job losses, medical emergencies, or business failures. Left unchecked, debt can spiral out of control and cause financial stress that affects various aspects of life.
So, what is the importance of debt management in Malaysia, and what are the options to manage debt? What are the benefits of hiring a financial planner to assist you manage your debt?
Why is Debt Management Important?
Debt management is important because it helps individuals avoid financial instability, stress, and problems caused by excessive or unmanageable debt.
If you are in debt, you may feel overwhelmed and stressed, which can negatively impact your physical and mental health. In addition, debt can restrict your financial freedom, limit your ability to make important life decisions and prevent you from achieving your long-term financial goals.
One of the main reasons debt managements is important is that it helps you maintain your credit score. If you have high debt or miss payments, it can negatively impact your credit score and make it harder to access credit in the future. A low credit score can make it more difficult to get approved for loans, credit cards or mortgages and prevent you from making major purchases or investments.
Debt management can also help you avoid falling into a debt trap. If you do not have a plan to manage your debt, you may have trouble making your payments, default on loans, or incur additional costs or fees. This can make it difficult to get out of debt and lead to a cycle of borrowing that is difficult to break.
Debt management can help you achieve your long-term financial goals. If you have high debt, it can be difficult to save for retirement, purchase a home, or invest in your education or business. By managing your debt effectively, you can free up more money for your long-term goals, making them easier to achieve.
4 Ways to Manage Debt
Budgeting: The first step in debt management is to create a budget. A budget is a plan that lists your income and expenses. This lets you see where your money goes and identify where to save more. When you create a budget, you can set aside a specific monthly amount to pay your debt, reducing your debt over time.
Debt Consolidation: Debt consolidation combines multiple debts into a single loan. Debt consolidation can make managing your debt easier because you only have to make one monthly payment rather than multiple payments with different interest rates. However, it is important to know that debt consolidation is not always the best option for everyone and be sure to consult a professional before making a decision.
Debt Snowball Method: In this method, you pay off your smallest debt first and then use the money you would have used on that debt to pay off the next smallest debt, and so on. Using this method can effectively pay off your debt. It gives you a sense of accomplishment and momentum as you pay off each debt.
Negotiate with Creditors: If you are having trouble paying your debts, you should negotiate. You may be able to work out a payment plan or negotiate a lower interest rate, which can help you reduce your debt over time.
Getting Professional Help with Debt Management
If you are having trouble getting a handle on your debt, it may be a good idea to get professional help. A financial planner can give you personalised advice and show you how to effectively manage your debt. They can also help you create a debt management plan tailored to your needs and goals.
Benefits of Hiring Financial Planner for Debt Management
Expertise: Financial planner have the expertise and knowledge to help you effectively manage your debt. They can advise you on the best debt management strategies and help you create a plan that works for your unique financial situation.
Objectivity: A financial planner can look at your finances objectively 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 plan. They can help you monitor your progress and adjust as needed to ensure you are making steady progress toward becoming debt-free.
Considerations When Hiring a Financial Planner
Hiring a professional financial planner can be a wise decision for individuals who cannot manage their debt. However, it is crucial to consider some key factors when choosing a professional financial planner. Here are some considerations:
Qualifications and experience: Before hiring a financial planner, check their qualifications and experience. You can look for professionals certified by reputable organisations or with a proven track record of helping clients successfully manage their debt.
Fees: You must know the fees for hiring a financial planner. Some experts charge 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.
Services offered: Different professionals offer different types of debt management services. For example, some focus on debt 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 a debt management expert, check their reputation and references. You can search online for reviews and testimonials or ask for references from previous clients. This way, you can get a better idea of the professional’s track record and quality of services.
Compatibility and communication: Finally, you must choose a financial planner you enjoy working with and can communicate clearly and effectively. You should feel comfortable discussing your financial situation with the professional and confident they will work with you to create a customised debt management plan that meets your needs.
Debt management is an important aspect of personal finance, especially in Malaysia, where debt is a common problem for many people. By creating a budget, exploring debt consolidation options, or using debt snowballing, you can effectively manage your debt and reduce financial stress. If you struggle to handle your debt, you should get professional help from a wealth advisor.
Wealth Vantage Advisory Sdn. Bhd. was established as the company of choice for clients and financial advisors, leading the change in the industry by focusing on the right way to do things.
Find out more at: https://www.wealthvantage.com.my/
Would you get professional help to manage your debt situation?
About the Author: Norsalina Aisyah Salim
Norsalina Aisyah has experience as Dealer Representative in Stock Broking Company for more than 5 years and was involved in many women and community-educating financial activities in Malaysia for years before joining Wealth Vantage Advisory as a Licensed Financial Advisor. She is now pursuing her PhD. at University Utara Malaysia and has a Certified Financial Planner (CFP) qualification. With her education, certification, and personal experience, she is keen to help others make the right financial decisions and has healthy finances to live a well-balanced life