Debt and reasons

A little debt would not hurt, will it? That is how it starts. You make a small purchase on your credit card and across time, without you realizing it, you’re thousands of dollars (or RM) in debt.


To stay out of debt, it is important to identify the habits that got you into debt in the first place. Herein I share;

10 Bad Money Habits and How To Break Them.

#1. You assume you’ll make more money later on

You assume you will get a better job, earn a better bonus or increment, or get big clients. Then you rack your credit card.


But, one lesson the pandemic taught us is that our income sources are not as secure as we thought they were. Many businesses have been hit hard and employees get pay cuts.

What you can do:


Don’t make assumptions. Look at true reality in front of you. If you want to buy something, save for it till you can afford it.

#2. You’re an impulse spender

You see something, you want it, you buy it.

You see a sale, you are attracted to big discounts, you buy it.


Now everything is a click of a mouse or a tap of the phone. You get what you want. If you not careful enough, this habit will cause you debt.


What you can do:


Create a 14-day rule. Take a photo of the item you want to buy, the name of the shop, and wait for 14 days. Then after, you decide whether to buy it or not.

#3. You don’t think “the worst is going to happen"

No one wants to think something bad is going to happen. So they spend as they earn. But, in life, things do go wrong.


House to repair, car breakdown, job loss, etc. If you don’t have savings, you will most likely use credit cards for help.


What you can do:


Start savings 10%  of monthly income into an emergency fund. Even if you are not able to do that,  save a little each month (perhaps $200), it’s still better than nothing.


Simple steps to build your emergency fund;

1.     Save $ 1000 as a start

2.     Set aside 5-10% of monthly income into emergency savings

3.     Build until it covers three to six months of your household expenses. 


Having an emergency fund will prepare you for unexpected situations such as major car breakdown, loss of a job, salary pay cut, etc, without going back into debt.

#4. You rationalize your purchase

Many people know that bad spending habits will negatively impact their finances. But still, they rationalize the bad purchase as useful and necessary. 


They feel like they deserve to spend as they have worked hard for the money. 

What you can do:


Before planning a trip or make the purchase right away, check again your current financial situation. Is this really a need or a want? Can I buy this by saving money instead of using credit?

#5. You don’t budget or Keep track of your money

Many people don’t budget because they think it’s difficult, boring, and just unnecessary. But if you don’t make effort to budget, you’ll have no idea where your money goes month after month. 


When you don’t track your expenses, you might spend on autopilot. It could be daily Starbucks, or $180/month gym membership you never use, etc. Spending on autopilot can be a huge drain on your finance.


What you can do:


Create a budget for your monthly income.  An ideal budget is as below. From your total monthly income :


a. 60% is allocated for Necessities. 

All expenses that you commit in a month.

ie. House loan, car loan, food, transport, utility bills, credit cards payment, etc. 


b. 20% is allocated for Savings.

ie. Emergency (10%) and Long-term needs (10%)


c. 20% is allocated for Others.

I recommend Lifestyle (10%), Personal growth (5%) and Charity (5%).

ie. new clothes, good dining, outings with family, training, books, give money to parents, infaq, etc. 


#6. You use a credit card the wrong way

A credit card is not a reason you’re in debt. If you use it correctly, the credit card can be an advantage. Plus, using the credit card in a smart way can earn you cashback or other types of rewards. 


However, it can cause you debt if you use credit card wrongly as below;

a)     Only make a minimum payment 

b)     Use the credit card to buy things you cannot afford


What you can do:


Use your credit card responsibly. One way is to cap your credit card value.  Ideally, you should pay in full. But, if you can’t do it, try to cap at certain limit.



You set the limit at $ 3,000. So if the balance has exceeded $ 3,000, try to pay as much as you can so that the balance is reduced to the target that you set.

#7. You try to keep up with others

You will save a lot of money not paying for brand names. 

Some people are killing their net worth due to financial peer pressure. They spend more time and money trying to keep up with others than appreciating what they have. 

We buy things we don't need, with money we don't have, to impress people we don't like.


What you can do:


You don’t need to get a brand new car just because your neighbour or coworker got one. You don’t need to spend money on designer clothes or bags simply want to impress on social media. 


Learn to enjoy the money that you earn by spending properly and reasonably.

#8. You spend more than your income

Logically, it’s impossible to spend $3000 each month when your salary is $2500. But, somehow it can be for some people. Borrowing from others, using credit cards, etc are ways to spend money you don’t have.


What you can do


Start earning more. Earning more is a good habit. After paying your monthly commitment, you don’t have much left to save money each month, then it is time to increase your income.


Ideas to increase income:

·       Ask for a raise

·       Look for a new job 

·       Upgrade your skills

#9. You use credit when you have cash

Using a credit card instead of cash for ordinary purchases is a bad habit, especially when you don’t pay your credit bills in full every month. 

What you can do:


You must be willing to pay for what you want with the money you have earned. You should use cash or a debit card to make everyday purchases like groceries, petrol, utilities, dining, etc. 


#10. You use debt to pay off debt

When you take another loan to pay off the loans, use a credit card to pay off other cards, then you are not paying off anything. You’re just shuffling your debt around and incurring more debt each time you do so. 


When you do a home refinance or loan consolidation (via home loan),  you will incur an additional cost of 10 -12% from the loan amount. Ie from legal fees, MRTA, valuation fees, etc. 


What you can do:


Prioritize to eliminate your debts instead of thinking to do refinance or debt consolidation. There are many ways to reduce debt faster


“Being in debt is hard. Being financially disciplined is hard. 

But we can choose our hard.” – Swish Goswami.

About the Author

Khairul, is a Certified Consultant registered with Principal, founder of Khairul Abu Bakar blogsite and the LinkedIn Spotlight 2019.

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