Debt has been the topic of conversation almost everywhere you turn in the media. The release of information regarding the percentage of household debt in the country stands at 86% against our gross domestic product: the highest in the region.
If you’ve found yourself forming part of the debt statistic; it doesn’t have to be a bleak situation. There are ways to take back control of your debt.
Consolidate your debts into a single loan with one repayment. Though repayments may be slightly more and tenure longer; paying just one monthly fee will free up cash and reduce your overall commitment ratio. Freeing up cash of course means more disposable income for necessities reducing the need to pull out the credit cards again.
Depending on how much you have in debt, and if you have any available assets to leverage; you could refinance your home. Home loan interest rates can be taken for 35 years (although it is not advisable to take the longest tenure available unless you don’t have a choice) and interest rates are as low as 4.20%.
If you do not have assets to refinance: you could apply for a debt consolidating personal loan. Some banks offer loan products specifically for this purpose. Even if you are unable to find a debt consolidation loan specifically for this purpose; any personal loan can be used but this will depend on if you are still able to borrow on your current debt ratio.
According to Bank Negara’s Financial Stability and Payment Systems Report 2012, 51% of credit card holders carry revolving balances. If you’re stuck with credit card debt; balance transfers could be the answer for you. With a balance of RM5000 and usual credit card interest rates of 18%; on a 0% balance transfer (assuming you repay only the 5% minimum amount every month) you save over RM745 in interest.
For situations where none of the above can apply; you can always seek the help of the Credit Counselling and Debt Management Agency ( AKPK). AKPK will study your financial position and create a plan specifically for your needs. However, upon registering with the programme; you will need to surrender your credit cards and have your finances monitored until all your loans have been repaid. If necessary, AKPK will also negotiate on your behalf with banks to re-organise your debt in a way that is manageable to you. Do note that this will only be done if there is truly no other way for you to meet your commitments on your available income.
Besides using banking products and other financial tools to help your debt situation; a change in lifestyle will go a long way to dealing with debt and improving your financial health. Changing your usual spending patterns and habits will create better cash flow to sustain a low level of indebtedness.
These are just some best practices you can consider:
- Do not carry revolving credit card balances. If for any reason you had to use your card for a large purchase; try your utmost to repay this quickly. When doing so; refrain from adding any more spending onto your card.
- Do not apply for loans unless you are able to afford the monthly repayments along with all your other commitments easily.
- Create a standing instruction for your savings at the beginning of every month.
- Not all debt is bad and you will have to have some loans. For most average wage-earners; you’re unlikely to be able to afford to pay for houses and cars with cash. But even in situations where a loan was necessary; ensure you are able to meet your payments every month.