Outsmarting Your Credit Card Debts

Salary’s spent, savings exhausted and the car loan payment is overdue again. Friends, family, and colleagues are equally short of cash and can’t lend you money – the panic sets in. How am I going to survive the next 15 days with only RM50?

Ways to have shorter relationship with your credit card debts

 

It’s the middle of the month.  Salary’s spent, savings exhausted and the car loan payment is overdue again. Friends, family, and colleagues are equally short of cash and can’t lend you money – the panic sets in. How am I going to make the late car payment? And survive the next 15 days with only RM50?”

That ad in The Malay Mail, the local bank offering personal loan with only 30 minutes approval looks very tempting. Run to the bank, fill out the form, sit back and wait.

Half an hour passes , dare you check the application?. You’re spending the cash already; paying your bills, buying that fancy new DSLR camera and taking your parents out to dinner. It all seems so real.

One word that snaps you back to reality: REJECTED! You’re shocked. “Why? How come? Oh, this can’t be happening!”

Why? Well the bank looked into your credit report and decided not to go ahead with your application. Remember the three months of missed car payments ? And those other bills that get paid, sometimes, when you’re feeling flush. Your credit report just isn’t appealing to the bank.

Now you begin to realise the importance of paying your debts on time. It’s not just for peace of mind, it will also help improve your chances of getting approved for the financial products you’ll need in the future.

As Bob Hope famously quoted:

“A bank is a place that will lend you money if you can prove that you don’t need it.

It’s never too late to start managing your debt wisely. You can start by listing down everything you owe: monthly payments, due dates and remaining balances. Look for those with the highest interest rates and start to clear these first. Credit cards are a good example.

Depending on how you pay your credit card bills, the interest rates are generally around 13% to 18% per year. Avoid paying only the minimum amount every month to keep it from snowballing. If you really can’t make your payments in the near term, consider transferring your balance to another bank that is offering a 0% period for new customers. Use these few months to catch-up on your payments.

Next, look at bills that have fixed monthly payment. This could be your Astro bill, a personal loan, or insurance premium. Settle these with a standing instruction to your bank, on a set date every month, a fixed sum will be transferred from your account to the payee. Make sure the date is as close to your payday possible so that you don’t have time to withdraw the money before paying the bills. This will ensure your bills are being paid on time.

For any debt, prompt action is crucial. If you ever find yourself in a situation where you think you won’t be able to pay your debts for a period of time, call your creditors straight away. Calculate how much you can actually pay and discuss the options with them. The banks may be able to restructure your monthly payments to a more affordable amount.

If still you need help in managing your debt, seek advice from The Credit Counselling and Debt Management Agency ( AKPK). They provide free and independent services on financial education and debt management.

Take control of your debt before it takes control of you.

Image: FairLoanRate

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