According to the Malaysian Department of Insolvency, among the top 5 reasons Malaysians went into bankruptcy in 2019 were due to personal loans, vehicle financing, housing loans, business loans and credit card debt.
Meanwhile, the total number of Malaysians being declared bankrupt as of December 2019 totals 299,186. While the number of people being declared bankrupt has seen a downward trend from 2017 to 2019, 2020 has been a financially tough year for everyone.
Watch out for the following warning signs of an impending personal financial crisis. Sometimes these signs may be the only thing keeping you from bankruptcy.
You may be headed into a serious debt problem if you’re seeing one or more of these signs:
1. You have missed too many payments and creditors are calling
If you have been defaulting on your payments, you will be hounded by creditors, who may file a bankruptcy case against you. In some ways, this is the biggest warning sign you can get because this may lead to you being served a bankruptcy notice by your creditors.
When it comes to debt management, it is always better to prevent than to cure. If you find yourself facing insurmountable debts and are unable to get things back on track, it is best to engage debt management professionals such as Agensi Kaunseling dan Pengurusan Kredit (AKPK). The longer you put off repaying your debts, the worse the problem will become.
2. Foreclosure and repossession of assets
When you fail to make timely payments on your car and properties, actions – including foreclosure and repossession – will be taken against you by the lender. This happens when you stop repaying your loans for a certain amount of time. These are clear signs that you’ve lost the grip of your financial situation.
Note: The loan moratorium due to the Covid-19 pandemic is the only time when debtors did not face any action for not repaying their outstanding loans.
3. Cash advances on credit cards
When you are falling behind on paying your bills, do you turn to getting cash advances on your credit cards to make the payments?
Getting cash advances from credit cards is not an answer! Most credit cards charge more than the usual interest rate for cash advances. Cash advances can cost you 5% of the withdrawal amount and on top of that you can get charged a daily interest rate.
If you find yourself resorting to cash advances, you are heading towards bankruptcy faster than you can say ‘credit card’.
4. Maxing out on your credit cards
It’s a vicious cycle that starts with charging more than you can pay off each month. When this happens and you start paying only the minimum amount in your monthly credit statement and still continue to make new purchases with your card, you are heading into an expensive debt trap.
Since credit card debt is unsecured, the financial institution that provided you with the card will be charging very high monthly interest rates.
It is important to ensure that you use credit cards prudently. The general rule of thumb is to use no more than 30% to 40% of your credit limit at any one time. This gives you flexibility in case of job loss, illness, divorce, or other threats to your income.
5. Being a guarantor of a loan
As if its not enough to be dealing with your own debt repayments, you can become bankrupt due to someone else action too. Co-signing a loan for someone else is also a common factor in many bankruptcy cases when the person you co-signed for defaults on the loan payments and you’re held responsible by the lender.
There are many implications to being a guarantor. It is important for you to consider these implications before making that decision, even if the beneficiary is a family member or close friend.
6. Bad credit rating
Trying to get a personal loan to manage your debts but can’t get any banks to approve the loan? You most likely have a bad credit rating.
Missing your loan repayments, using up all the available funds in your credit cards and being a guarantor to a defaulted loan can lead to your credit rating taking a hit. This means your credit score will hit an all time low and you will find that any new loan application will be rejected.
Having a bad credit rating can affect you more than you think. Ensure timely payment of your loans and bills for a clean credit report.
7. You have no contingency fund
Finally, your bank account shouldn’t be going negative every month. If you find that you’re bouncing payments and are frequently in the red before that next paycheck, that’s a strong sign that your current money management plan isn’t working and that bankruptcy is likely on the horizon.
When you are just getting by with no back-up plan, all it takes is one financial misstep and you could find yourself facing bankruptcy.
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This article was first published in 2014 and has been updated for freshness, accuracy and comprehensiveness.