How can we avoid the debt trap?

Distinguish needs and wants
Many people incur excess credit card debt through overspending because of their inability to tell needs from wants.
Example of a handbag, while one may need a bag for daily usage, one only wants a luxury bag costing thousands of dollars.

Prepare for emergencies
Have appropriate insurance coverage or saving just in case of emergency needs such as medical bills.

Invest wisely
Gain a good understanding of the investment product and of the risks before making any investment.

Don’t count your chickens before they hatch
Many people fell into the trap of “spending future money”.
Don’t relied on expected sources of income such as bonuses and pay increments to finance future repayments

Use the 4321 formula
– Loans, including housing, car and credit card loans, should not exceed 40 per cent of one’s income.
– Expenses should not exceed 30 per cent of one’s income. They can be covered with credit cards, but
these should be paid off every month.
– One should save around 20 per cent of one’s income on long-term financial goals such as marriage and
retirement planning.
– One should save around 10 per cent of one’s income for insurance coverage for oneself and one’s loved ones