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Proper Debt and Credit Management – How not to go Bankrupt

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Knee deep in debt

We all know someone who is buried in debt or struggling with their finances. It could be our parents, brothers and sisters, a cousin, or our friends. It could even be YOU. In this day and age, it’s near impossible to not be in debt because things are pretty expensive. The house or car that you will be buying will cost more than what you are earning. Unless you’re financially equipped like Bill Gates, it’s hard to acquire the things you want without having to rely on somebody else.

Bankruptcy – the point of no return

When a person is already neck-deep in debt, he goes for the last Hail Mary pass that will save him from his financial sinkhole: Bankruptcy. This is a legal status where a person or company is no longer able to pay off his debt and avoids having to meet collectors for consumer debt. This is sometimes done by both the creditor and debtor, but more often than not, it’s the debtor that imposes this title with a court order. In some countries, bankruptcy is different from insolvency and it is only limited to individuals; companies and have to file for other insolvency proceedings.

Steps to proper credit and debt management

There are ways for you to juggle or manage your current debts or credit. Assuming you have a steady flow of income or a career, you can get rid of your loans without having to file for bankruptcy. Think of it as doing a credit card comparison Malaysia.

  1. Set a budget – Setting a budget is the first step to proper credit and debt management. If you have different payment schemes and dates, it’s more important for you to set a budget accordingly. Now let’s say you are receiving your salary at the end of every month and the deadline of your bills is between the first and fifteenth of every month. You should create an itemized budget list that will show how much money you’re going to spend on that day for your bills. A budget will also serve as a reminder on what you need to pay and spend on. This helps in cutting back on miscellaneous purchases.
  2. Pay on time – Because you already have a budget, there is no reason for you to be late with your payments. This helps you avoid paying the late fees or additional interest rates.
  3. Know your credit score – A credit score is important in determining how creditworthy you are. It’s like a thermometer for your credit reputation. When you have a bad credit score, you won’t be able to get access to low interest rates or better payment schemes. When possible, check with your local credit reporting agencies or you can check online.

Money is hard to come by these days and it is imperative that you save some of it for the rainy days, and credit cards just don’t save you during your cash-strapped times.

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