(This article was originally published on the 27th of February 2018 and updated on the 24th of October 2019).
A critical component of personal finance is avoiding debt build up. Debt management is a growing concern of many in Malaysia. One of the major reasons why financial liabilities are growing in alarming proportions is the unrestrained use of credit cards.
If you are a responsible borrower, debt repayment is of paramount importance. This matter should be treated with urgency. There has to be a conscious effort to reduce your monthly debt commitment until all debt is settled.
Take Immediate Action
Thinking about reducing your mountain of debt is mentally draining. You cannot put the blame on anyone except yourself. You could have escaped the piling up of debt if only you had the discipline to take control. But that is in hindsight.
Nonetheless, your debt will not simply go away. Others even engage the services of professional counselors or the so-called ‘debt-relief’ experts. That might entail added costs which is something you would like to avoid.
The best way to contain the situation is to fix your financial dilemma on your own. With some smart planning and determined approach, your financial burden can be lessened, so as your monthly debt commitment.
5 Steps to Reduce your Monthly Debt Commitment
The hardest part of any debt reduction goal is knowing where to start. Timing is no longer a question because prompt attention is needed. If you are firm on resolving the matter, follow these steps that can help you to bring down your outstanding balances to manageable levels.
1. Assess Financial Obligations
A good starting point is to ‘accurately’ evaluate your current debt situation. When you know the exact amount, type of debt and schedule of payments, it would help you to plan out better.
What appears insurmountable at first would be doable if you are organised and systematic in dealing with your circumstance. You can seek the best alternatives to reduce your monthly debt commitments.
2. Align Budget with Debt Commitment
After you have assessed your financial obligations, review your monthly budget. Do some financial exercise and list down all of your regular and recurring expenses. Do not leave out any expense that would have a material effect on your monthly budget.
Once you have deducted all of the expenses, the leftover cash will be the amount you can afford to pay your monthly debt commitments. You can increase your disposable income by revisiting your expense list.
Look for the non-essentials like cable or i-net subscriptions and other stuff. Reduce your monthly spending on these items. It will put you in a better financial position as you begin a crucial activity.
3. Craft a Debt Reduction Plan
When everything is arranged, you can craft a workable debt reduction plan. Earmark your available monthly cash on hand for those debts that hurt the most. It means you prioritise paying the loan with the highest interest rate and highest outstanding balance.
The plan will be a continuing cycle every month. Your objective is to significantly reduce the debt balance, if not fully liquidate them. Repeat the process of ranking the debts according to the highest rate and outstanding balance.
If the greater part of your debt is credit card payables, securing a personal loan that charges lower rates can be a strategy in your debt reduction plan. This option can lessen interest expense and further reduce your debt balance.
As you are implementing the debt reduction plan, you are also tempering your spending. In particular, you need to put a stop on your credit card usage. Accumulating more charges will only set you back and wreck your debt reduction strategy.
4. Negotiate with your Creditors
Another approach is to negotiate with your creditors. Instead of turning your back and evading their collection follow ups, face up to them. Negotiating with the banks or credit card companies is not a sign of surrender. Informing them of your predicament reflects your willingness to pay.
There is more to gain in case your creditors agree to a reduced settlement or debt restructuring scheme. A payment extension might be granted too. Also, if there is a window to move your credit card debt to a new one with lower interest rates, do it.
As mentioned earlier, obtaining a low interest rate personal loan through debt consolidation can be a solution to pay off your debts. Some who took this option were able to reduce their monthly debt commitments. Debt consolidation offers a lot of benefits too. Consult a personal loan provider to find out how they help to lighten your financial cargo.
5. Execute your Debt Plan Diligently
The success of your debt reduction plan rides on your shoulders. Just as your accumulation of debt is your own doing, resolving the problem is your own lookout.
As such, executing your plan consistently without fail, is a surefire way to achieve your financial goal. Start implementing your debt plan the minute you are ready. No time should be wasted. The sooner you get the job done, the better.
Be your own Debt Handler
A debt problem is a very private matter. If you do not want to disclose your financial concerns, keep it as a secret and deal with it by yourself. You can pull it off if you can strictly implement your personally crafted debt reduction plan. Your financial mistake can only be corrected with willpower. Once you have succeeded, learn from your debt blunders. A debt-free situation is far better than a debt-ridden condition.