Many individuals find themselves with hard-core financial issues due to a variety of reasons.
From overspending on non-essential items to facing unexpected circumstances like unemployment or illness, the journey towards financial stability can be fraught with challenges.
The primary factors contributing to this are peer pressure and the allure of the "You Only Live Once" mindset, which prompts individuals to overspend on luxuries beyond their financial capabilities. Additionally, misguided financial decisions stemming from a lack of understanding about loans and financial management further compound the situation. Moreover, falling victim to get-rich-quick schemes that offer the promise of easy wealth ultimately leads to financial ruin, perpetuating the cycle of debt and bankruptcy.
Adverse Outcomes
Unforeseen events such as sudden job loss or suffering from a critical illness can profoundly disrupt the financial stability of individuals.
When a young person unexpectedly loses their job, they not only face the immediate challenge of replacing lost income but also the long-term implications of unemployment. Without a steady source of income, they may struggle to meet their financial obligations, including loan repayments, rent or mortgage payments, and daily living expenses. This loss of income can quickly deplete savings and push them into debt.
Similarly, a critical illness can have devastating financial consequences for individuals. Medical expenses associated with diagnosis, treatment, and ongoing care can quickly accumulate, especially if the individual does not have adequate health insurance coverage. Additionally, the inability to work due to illness or the need to take unpaid leave can further strain finances, leading to mounting debt and potential bankruptcy.
Signs of Financial Distress
1. Tight cash flow and high dependency on credit cards or borrowings to cover expenses.
When individuals experience tight cash flow, it means that their income is insufficient to cover their expenses. They may find themselves constantly struggling to make ends meet, resorting to credit cards or loans to bridge the gap between income and expenditure. This reliance on credit cards or borrowings often leads to accumulating debt, as they may not be able to repay the borrowed amount in full each month. Over time, the interest charges and fees associated with credit card usage can exacerbate the financial strain, further worsening their financial situation.
2. Arrears in debt repayment and selective payment of debts.
Falling into arrears means failing to make timely payments on debts or bills. When individuals are in financial distress, they may prioritize certain debts over others, leading to selective payment. For example, they may prioritize paying off debts with higher interest rates or debts secured by collateral to avoid repossession or foreclosure. However, this often means neglecting other debts, resulting in late fees, penalties, and damage to credit scores. Selective payment of debts can create a vicious cycle of increasing debt and financial instability.
3. Receiving calls or reminders from banks or debt collectors.
When individuals are unable to meet their debt obligations, creditors may resort to contacting them via phone calls, letters, or emails to remind them of their outstanding payments. These reminders serve as a warning sign of financial distress, indicating that the individual is struggling to manage their debts. In severe cases, debt collectors may become involved, increasing the pressure on the individual to repay their debts. Constant communication from creditors and debt collectors can cause stress and anxiety, further exacerbating the individual's financial difficulties.
However, with the right knowledge and strategies, it is possible to overcome financial difficulties and build a better financial future. There are three practical steps for an individual to address financial issues and set a course for recovery:
Admit:
Individuals need to confront the reality of their financial situation honestly. This involves acknowledging the existence of financial distress, whether it is due to mounting debt, overspending, or unexpected expenses.
Analyse
Denial or avoidance of financial problems only prolongs the issue and prevents effective solutions. Admitting the problem is the first step towards taking control of one's finances and seeking help when needed. After acknowledging financial distress, individuals should analyse the root causes of their financial difficulties. This may involve examining spending habits, identifying sources of debt, and understanding patterns of financial behaviour.
By identifying the underlying factors contributing to financial challenges, individuals can develop a clear understanding of their financial situation. This analysis lays the groundwork for creating a targeted plan for recovery.
Act
Once individuals have analysed the root causes of their financial difficulties, it's essential to take proactive steps towards improvement. This may include seeking financial advice, exploring debt restructuring options, or implementing a budgeting strategy. Action is crucial for moving towards financial stability. It demonstrates a commitment to change and empowers individuals to regain control of their finances.
Whether it's negotiating with creditors or cutting unnecessary expenses, every step taken brings them closer to their financial goals.
AKPK as a Redress Avenue
Agensi Kaunseling dan Pengurusan Kredit (AKPK) is an agency set up by Bank Negara Malaysia in 2006 to help individuals take control of their financial situation and gain peace of mind that comes from the wise use of credit.
AKPK offers valuable financial advisory and debt repayment assistance to individuals facing financial difficulties. The services are designed to provide support and guidance to those seeking to improve their financial situation—an effective way for individuals to address their financial challenges.
There is no need to suffer in silence and sacrifice the mental health of yourself and your loved ones. AKPK may very well be able to offer a solution to your financial woes.
