Most of us dream of enjoying a debt-free life – being able to live a life without worrying about debt every month. However, with the current economic situation in Malaysia, it has become quite hard to lead a debt-ridden life.
The Debt Problem in Malaysia is More Severe Than You Thought
According to an August 2017 report by NST, 3.6 million credit card holders in Malaysia have RM36.9 billion outstanding balance, and 7.3% was due to overdue balance. Meanwhile, the household debt still stands at 84.3% of the Gross Domestic Product.
With these facts in line, it’s clear that many Malaysians have problems in managing their finances.
Do not worry if you are one of them. Follow these 5 practical tips on how to lead a debt-free life.
4 Practical Tips to Become Debt-Free
Here are some of the most useful tips on to get rid of your debt. Follow some of them, or if you can – follow all.
1. Get to Know Your Debt
Worrying too much on your debt won’t help you. Instead, try to find a solution to settle your debt. Do not ignore them and hope everything will disappear. Life doesn’t work that way.
List all your debts including interest, and get a total of all your debts. Then, calculate your debt to income ratio – your total debt divided by your total annual income.
You can exclude mortgages since they are a long-term financial commitment.
An example of this calculation is:
Total debt (RM20,000) / Total annual income (RM40,000) = 0.5
If your debt-to-income-ratio is equal to or more than 0.5, you have to rearrange your finances. Try to get rid of some of the debt as soon as you can.
2. Take Control of Your Debt
Now its time to start managing your debts the right way, but how? Experts suggested these two debt-reduction methods.
This technique requires you to clear the debt with the highest interest rate first. This makes a lot of sense since the higher the interest rate, the more you can save by paying them early.
Snowball method is one of the most popular debt-ridden strategies. Unlike the previous techniques, the snowball technique requires you to settle the smallest debt first. You concentrate on the smallest debts and keep paying them until they’re gone. You can still continue paying your bigger debt in a small amount.
This method focuses on creating a habit of repaying debt, and motivate you when you clear the small debt. Do not underestimate the power of habit and motivation – they have been proven to work well.
3. Reduce Your Expenses
Many of us end up in debt due to excessive spending. So, the most practical way to reduce debt, and avoid further debt is to cut down on expenses.
However, this is easier said than done. These are some useful tips to help you.
- Avoid impulse buying. Only buy what you need. Don’t fall victim to the latest marketing promotions and sales.
- Become a home cook. Sure, eating out is more enjoyable. However, you can easily make a 5-star gourmet at home. Not to mention they are cheaper and healthier.
- Sell things you don’t need. Use marketplace like Mudah.my or Shopee Malaysia to find a buyer.
- Quit smoking as soon as possible. With the rising price of cigarettes, it is time to stop this damaging habit of yours. Lead a healthy life and save some money.
The point here is you have to create a habit. By spending less and saving more, you can easily lead a debt-free life in the future.
4. Extra Income
If you are serious in living a debt-free life, you should try to find extra income. Sure, cutting down on your expenses is a good habit – however, it’s not the best solution.
Nowadays, finding extra income is not as hard as it uses to be. Especially online income. There are many methods you can try to get those side incomes to help you clear your debt.
Have some free time and love to drive, become an Uber or Grab driver. Got many followers and social media, become a brand ambassador or dropshipping. Love to write and share, become a blogger and earn income through your website.
The possibility is endless (quite).
Start Today and Lead a Debt-Free Life
I hope this tip on how to become debt-free in Malaysia will help. You will have to start as soon as possible. There’s no point in delaying or procrastinating. The debts won’t go away just like that.
If you have tried all these methods but still finding it difficult, try to seek help. Reach out to a family member, or friends. Or, seek help from professionals such as AKPK for counselling.