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How To Manage Your Debt Efficiently

Updated: Oct 12

Are you feeling clueless on how to improve your debt situation? Learn several steps you can do to ensure a better debt management for your financial plan.

Everyone, no matter if you are young or old, has dealt with some amount of debt. As debt is a frequent guest in most of our lives, you will need good knowledge to manage your money and avoid unsettled debt piling up in the future. According to the 21st edition of Malaysia Economic Monitor 2019, 60% of bankrupt borrowers are people around aged 25 to 34 years old.


Whether you have just a little debt or a mountain of debt, careful management and timely payments can make a difference to having a debt monster to battle in the future or a comfortable financial life. 


#1. Be aware of your debt


Making a list for your debt with the total amount of debt, the creditor (individual/banks/credit card) monthly payment, due date, and interest rate. Download your credit reports at Central Credit Reference Information System (CCRIS) website to confirm the debts in your name. This system is created by Bank Negara Malaysia’s (BNM) Credit Bureau to provide standardized credit reports for potential borrowers i.e banks.


Having this debt list is important for you to make you see the bigger picture and stay aware of the complete list of your debts. Set automated reminders so that you do continue reviewing this list periodically to stay aware of your debt and the effectiveness of your debt management plans. 


If you are married, it is worthwhile to run this exercise with your spouse as well as their bad credit can affect you as well.


#2. Determine which debts to pay first


With your debt list in hand, it’s time to identify which debts you should pay off first. Disregard the how’s and when’s for now, and focus on priorities.


One of the first debts you can pay is the credit card debts. This is one of the best strategies because credit cards have higher interest rates compared with other debts. Paying debts with higher amounts can motivate you to pay other debts after that. This creates a sense of accomplishment because you can solve bigger debts before moving on to a smaller amount of debts.


Remember to continue utilizing your debt list by regularly tracking payment amounts, outstanding debt, and due dates.


If you are having trouble deciding which debts to pay first, do consult with a licensed financial planner to get a professional opinion on which debt has a larger impact on your financial future. 

#3. Create a debt payment schedule


Now that you have identified which debt to prioritize paying off, we come to the how’s and when’s.


Make a debt and bill payment calendar that can help you keep track of which payments you need to do first after getting your paycheck every month. Fill your debts and bill amounts at every due date. It is highly recommended to use an electronic calendar like Google Calendar so you can set notifications two days or one day before the due date to remind yourself to make a payment.


Making a detailed schedule can help you stay disciplined on paying of your debt and avoid procrastination or worse, insufficient money to pay. This can help get your commitment and priorities checked before you go and spend your money on something else


 Do not delay the payment of your debts after receiving your paycheck. Discipline is the key when you want to ensure a better credit score.


If you are having trouble deciding how to juggle your cashflow and other commitments while paying off your debt, do consult with a licensed financial planner to draft a plan that suits your unique needs. 


#4. Use a monthly budget to plan your expenses


Having a budget can helps you to prepare enough money to cover your monthly expenses. Plan far enough in advance and take early action if you feel like your paycheck cannot cover your debts and bill this month or next.


A budget can also help you plan where you can put your extra money left after expenses are covered. The rest of the money can be used to pay your debt faster.


Set automated reminders to review your expense tracking daily, weekly, monthly, and quarterly to ensure you have enough data to observe your spending trends.

#5. Create a debt payment schedule


Now that you have identified which debt to prioritize paying off, we come to the how’s and when’s.


Make a debt and bill payment calendar that can help you keep track of which payments you need to do first after getting your paycheck every month. Fill your debts and bill amounts at every due date. It is highly recommended to use an electronic calendar like Google Calendar so you can set notifications two days or one day before the due date to remind yourself to make a payment.


Making a detailed schedule can help you stay disciplined on paying of your debt and avoid procrastination or worse, insufficient money to pay. This can help get your commitment and priorities checked before you go and spend your money on something else


 Do not delay the payment of your debts after receiving your paycheck. Discipline is the key when you want to ensure a better credit score.


If you are having trouble deciding how to juggle your cashflow and other commitments while paying off your debt, do consult with a licensed financial planner to draft a plan that suits your unique needs. 


#6. Use a monthly budget to plan your expenses


Having a budget can helps you to prepare enough money to cover your monthly expenses. Plan far enough in advance and take early action if you feel like your paycheck cannot cover your debts and bill this month or next.


A budget can also help you plan where you can put your extra money left after expenses are covered. The rest of the money can be used to pay your debt faster.


Set automated reminders to review your expense tracking daily, weekly, monthly, and quarterly to ensure you have enough data to observe your spending trends.

#7. Use your emergency fund if needed


Life is not always sunshine and rainbows. Sometimes, bad things can happen like sudden unemployment. When this happens, it will be even more difficult to ensure continuous debt payment. This is when your 6 months (and more) emergency fund will help to cover little expenses and debt payment while looking for a new alternative (paycheck).


The first step is to work towards creating a small emergency fund by allocating at least 30% of your monthly salary for your savings. Put that in a separate bank account and try to avoid withdrawing the money unless necessary. This can help you make a better savings habit and can help you in the not so distant future when bad times like an economic downturn happen.


#8. Get professional advice


If you already doing all the above steps and are still finding it hard to resolve your current debt situation, you may need help from a professional like The Credit Counselling and Debt Management Agency, an agency set up by Bank Negara Malaysia in April 2006 to help Malaysians take control of their financial situation and obtain peace of mind.


You can also consult a licensed financial planner to help you plan out your debt settlement plan and offer you their advice to maintain a good cash flow for the coming future. This can be a great way to take off the burden of planning your financial strategy as well as provide better set of information when it comes to financial matters when you consult a financial services professional.

Conclusion


It isn’t easy to wriggle yourself out of a debt situation, especially when you have limited knowledge about your credit situation and your current financial standing. Don’t be embarrassed to admit and seek help, either from a credit counseling agency or financial planner to help settle your debt and provide a sustainable financial plan that protects your well being for now and your future.


What other steps do you think could be good for settling your debts?

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