Effective Ways to Avoid Credit Card Debt

The most important thing about credit cards is your mindset. When you have a credit card, what is in your mind? Are you going to entertain yourself and your friends with the card or to buy things you want on credit? Stop thinking about the word credit and treat your credit card like cash. Take advantage of your credit card for the following purposes only:

The objective of holding a credit card

·         Convenience: Avoid carrying a lot of cash

·         Get reward points: To redeem for things you like

·         Savings: Get cash rebates and pay less

·         Simplify your life: Let credit card issuers settle your monthly bills

·         Smart buying: Purchase big-ticket items in installments without incurring interest

·         Online transactions: You need a credit card to transact online.

The wise ways to avoid credit card debt

The keyword is discipline: You have to pay your credit card bill every month fully and promptly. This is to avoid charges on late payment and incur high-interest charges by paying just the minimum amount. Interest is compounded and snowballed on the outstanding amount. It can easily go beyond your means to pay and you can end up bankrupt.

Treat your credit card like cash: It means you set aside the same amount every time you charge something to your card. At the end of each month, the amount you set aside is earmarked for credit card payment.

Self-control: Control your urge to want more things in life. Stop reading advertisements that are luring you just to buy, buy, and buy.

Say no to credit: Getting into credit card debt is easy, but getting out of it is difficult. Avoiding credit and getting cash advance from your credit card is the best thing you can do for yourself.

It is a very simple idea: no credit, no debt, and no money problems.

Source: Effective Ways to Avoid Credit Card Debt

What an Emergency Fund Can do for Your Car Loans and Credit Card Debts

Your current earning may be good enough for you to qualify for a car loan or get your credit cards. However, it is not good enough when you are unemployed. You need an emergency fund.      

Credit card debts

Do you know in most cases people have declared bankrupts because they are out of a job?  See the comments in this article: Credit Card and Bankruptcy in Malaysia. Unemployment may be an issue; the most important thing is that there is no emergency fund to cushion the blow. When it happens, the credit card debt is allowed to snowball and facilitated the bank to institute bankruptcy proceedings against defaulters.  With an emergency fund, you can carry on living normally and pay your credit card bills promptly to avoid interest and late payment charges. Start using your credit card only when you have sufficient emergency funds to cover three to six months of living expenses.

Car loan

 A car loan is quite a substantial amount. The fact is that the car does not belong to you, you are the hirer and the bank is the owner. When you default on installment payments, the bank will repossess your car. Most likely than not, the current car value which has been depreciated over time is insufficient to cover the amount you owe the bank.    The bank will go after you for the difference. When you are unemployed, you have no funds to top up the amount. The outstanding amount together with compound interest will accumulate into a sum like RM30,000 in Malaysia to declare you bankrupt. An emergency fund will help you avoid such a situation.  

 Do you have an emergency fund? It is good to cover life’s unexpected expenditures such as sudden medical expenses but more importantly, avoid being declared bankrupt.            

Source: What an Emergency Fund Can do for Your Car Loans and Credit Card Debts

Tortoise’s Way of Making Money

You must have heard about the story of the race between a hare and a tortoise and eventually the tortoise won the race slowly but steadily. Similarly, you can’t get rich quickly in investment. Making money is for the long-haul:


Long-term investment: As an example, Genting Singapore (G13) is a winning stock (gamblers are generally losers) in gaming. Invest early and keep the shares for the long term. Over time the stock will appreciate in value You will also reap the reward of a bonus issue, rights issue, and regular dividend payments. 

Trusted brands: Invest in shares of companies (if public listed) with trusted brands. What are the trusted brands? Just look at the annual report of Reader’s Digest Trusted Brands. Among the trusted brands voted by consumers in 2010 by the Reader’s Digest, Asia’s Trusted Brands Survey are Acer, Carlsberg, Canon, Great Eastern, Honda, Maybank, Panasonic, Petronas, Prudential, Public Bank, Samsung, Sime Darby, Sony, and Yeo’s 

Dollar-cost average: You invest at regular intervals at an equal amount to take advantage of a lower total average cost for the shares purchased over time. It is because when prices are high you get fewer shares and when prices are low you get more shares.


Prudent investment is a combination of picking trusted brands, investing regularly, and going for the long term.

Source: Tortoise's Way of Making Money

10 Tips to Avoid a Default on a Car Loan and Bankruptcy

According to a news item in The Star, there were more than 500 bankruptcy cases every month due to the failure of people to service loans for their hire-purchase of motor vehicles during the past five months this year. How can you prevent such a thing from happening to you? 


1. Factor the monthly repayment amount into your monthly budget: The big question is: Do you think there is room to accommodate the monthly installment in your monthly budget? If the total cash outlay including the car installment is more than your inflow, you can forget about getting a new car, bankruptcy will be the only outcome.

2. Hold on to your gratification: Don’t follow others just because one of your friends has got a new car. Exercise self-discipline to live within your means.

3. Get a smaller c.c. car: Opt for a smaller cc car so that you are comfortable with your monthly budget. Don’t overstretch. 

4. Save more for a bigger down payment and a smaller monthly installment: This is the most sensible thing to do so that the monthly amount fits nicely into your monthly budget.

5. Wait for the next pay increment to buy a new car: Perhaps now you are not in a position to get a new car. How about the next pay increment? Can you hold on to it? 

6. Wait for your next bonus to make the down payment: Bonus time is a good time to consider making a down payment for a new car.

7. A used car: What do you think of a used car? It should not be more than three years old and free from accident.

8. A shorter installment period: Just imagine an interest rate of 3% for a loan of 50,000 the amount of interest for one year is 1500, for 2 years it is 3000, for 3 years it is 4500, for 4 years the amount will be 6000 and for five years it will be 7500. Go for a shorter duration. Besides, the future is unpredictable; the sooner you complete the installments the better it is 

9. Get the basic model: Get the basic model with manual transmission minus the leather seats and wood paneling. It costs very much less. 

10. A need or a want: In a country like Singapore with an effective public transportation system such as MRT and buses, going from one place to another is a breeze. You don’t really need a car. Ask yourself: Is it a want or a need? It is easy to purchase a car, but maintaining a car is a different story. The cost of petrol, parking fee, maintenance cost, insurance and not to mention depreciation and accidents, will burn a big hole in your pocket.


You get a good feeling to show off your new car among your friends, but if you fail to catch up with the monthly installments just for three consecutive months your car will be repossessed. If you still owe more than RM30, 000 after disposing of your car, the bank will make you bankrupt. Where are you going to hide your face?

Source: 10 Tips to Avoid a Default on a Car Loan and Bankruptcy

How Many Bank Accounts do You Need to Manage Your Personal Finance?

One of the aims of personal finance is to control your spending according to your budget. It is also part of your financial plan to save sufficiently.  An effective way to achieve your goals in these two areas is to maintain three separate bank accounts.

Account No.1

This is a receiving account. This is the account to deposit your regular monthly pays. Your income for your monthly budget is based on this take-home amount. If you do receive additional income not budgeted, it should go to your account No.2. It is always a wise move to save an extra amount earned and not spend it.

Account No.2

This is an important account. Your financial independence starts here. The amount that you have budgeted for savings should be taken out from account No. 1 and deposit here. This is the account to build an emergency fund, savings for big-ticket items, accumulate a fund for investment, children's education, and retirement. This is also the account to save enough down-payment for your car and dream home. Your financial goals should be a strong motivating force for you to deposit regularly the desired amount into this account.

Account No.3

This is an expense account. This is the account that you transfer an amount from account No.1 that you have budgeted for spending for the month. In this way, you will know in advance the amount you can spend in a month and you just have to keep your spending limit to that amount. This account is to cover your household expenditures, credit card bills, standing orders, utilities, children‘s pocket money, petrol, insurance, installment payments, and the like.

Debt settlement before Savings

When you are in debt, it is a wise move to settle your debt fully. The interest you earn for the amount saved will not be enough to cover the interest of your outstanding debt. When you are debt-free, you are stress-free and you can save even more.  

Do you think it is a good idea to maintain three accounts to manage your money?

  

Source: How Many Bank Accounts do You Need to Manage Your Personal Finance?

Can You Choose Wisely Between Savings and Debt Settlement?

You are in debt and you also want to save for a rainy day. What do you do? If your income is comfortable enough to cover savings and settling debt, it is good to do both at the same time -reduce your debt and build up your nest egg. What if your fund is limited and you have to make a choice? I would suggest you pay off your debt first. The reasons are not hard to find:

1.       Interest on debt outpaces interest on savings: it does not matter it is a personal loan from a bank or your credit card debt because financial institutions have to make a living by charging more interest on a loan and paying less on customers' savings. So, it is not prudent to save and build up more debt.

Interest on debts grows without rain.
-Yiddish Proverb

2.       Avoid getting into bankruptcy: As long as you are in debt and it does not matter how small the amount is when you do not do anything about it, the amount will snowball by accumulating interest on interest into an amount big enough for the bank to declare you a bankrupt. 

3.       Peace of mind: It is a good feeling to be free financially. Debt-free means stress-free and happy.

Homelife ceases to be free and beautiful as soon as it is founded on borrowing and debt. ~Henrik Ibsen

4.       Plus point for your creditworthiness: Clearing your outstanding sum, especially your credit card debt, as soon as possible is the way to improve your credit score.  It is also to demonstrate that you are a responsible person and you are creditworthy. It will be easier for you in the future to secure another loan.

5.       Save even more: As soon as your debt is fully settled, you can channel the same amount to your savings account and save even more.

Are you paying off your debt first?

Source: Can You Choose Wisely Between Savings and Debt Settlement?

7 More Effective Ways to Save Money

What are the children asking from Santa Claus this year? Here are the answers:

A job for their mom or dad. Money for the heating bill. Food or a place to live. Maybe gloves or boots.

Time is so bad that children don’t ask for things for themselves. It boils down to the fact that we really need to save for a rainy day. Here are more ways to save effectively:

1.      Habit: You must thank your parents for helping you cultivate the savings habit since young

. You were given a piggy bank and when you were older; your parent opened a savings account for you in one of the banks in town.  You have seen for yourself the money in the account has accumulated into a substantial amount because you have developed the habit to save regularly.

2.       Budget: As an adult, you are smart enough to incorporate an amount earmarked for savings in your monthly budget. You very well know that to save with what is left over for the month does not work. To budget for it is the most effective way to save. 

3.       Discipline: A budget is a wonderful tool to manage your personal finance. Are you following the budget? It takes a lot of self-restraint and personal discipline to follow your budget faithfully. The moment you go beyond the budget you are in debt.

4.       Financial goals: Your financial goals are a great incentive to save. You know what you want to do with your savings and you will determine not to touch the money. You may want to save for an essential big-ticket item, an emergency fund, a down payment for your car, or your dream house. Building wealth is another important goal. You know the starting point to build your wealth is from your savings. When you think of your money goals, you will not spend unnecessarily.  

5.       Avoid temptation: TV commercials are getting your attention. The billboard ads are seducing you to spend. Ads in the papers are irresistible. Your neighbor is driving a car which you wish were yours. Can you control your urge and avoid spending on what you want?

6.       Be fearful of debt

: Do not think that you are gainfully employed and you are qualified for a loan. You pay more when you purchase with a loan. Interest is a dangerous element that can snowball into an amount that is beyond your means. Before you know you are declared bankrupt. As a bankrupt can you stand tall among your friends and relatives?

7.      Think of financial independence: I cannot imagine a situation that I have to ask for money from my friends and relative.  Financial independence is the greatest incentive to save. You live the life you want with what you have and you are happy because you don’t have to ask for financial assistance or depend on anyone.  A happy life is about peace of mind.

It is never too early to encourage long-term savings. ~Ron Lewis

Source: 7 More Effective Ways to Save Money