If reports have been anything to go by, we are all seriously in debt. As reported by major dailies through the month of June; Malaysia’s household debt stands at a staggering 86% of the country’s GDP, the highest ratio in the region. But even beyond mere statistics, buzz on the street is enough to tell you that Malaysians are finding it harder and harder to manage ballooning property prices and a cost of living that is increasing in leaps and bounds.
When people aren’t able to make ends meet and property prices are too high for a realistic downpayment to be made, the people will turn to loans to fill the shortfall. What we end up with is a vicious cycle of consumer debt that our economy struggles to sustain.
It doesn’t have to be the end
If you are finding yourself in debt that is becoming larger than you envisioned; there are ways to remedy it. These are the simplest four steps you can take to regain control of your finances:
- Debt consolidation: with many loans to service and pay the minimum amount for, you may find yourself with a lack of cash to and thus end up turning to credit cards or more personal loans to tide you over. Consolidating multiple personal loans and credit card debt into one loan frees up cash to prevent you from turning to credit once again. Some banks offer special refinancing products for this very purpose. If you have property; consider refinancing at a higher amount to use the excess to repay the other loans. Debt consolidation may end up taking longer to pay off but having extra money in your pocket is always helpful.
- Balance transfers: if credit card debt is the main debt you are struggling with, consider a balance transfer programme to save on interest and provide some structure to repayment. For some users, having structured repayments every month make them more diligent in repayment. If this is the case for you; balance transfers will definitely help with getting rid of your credit card balances and save you hundreds in interest charges.
- Repayment plans through AKPK: the well-known debt counselling agency, AKPK is always on hand to help if you find that your loans are much bigger than even the first two methods can help. AKPK will scrutinise your finances, offer advice and if necessary, negotiate with banks to consolidate and reduce your monthly payments for you. However, it is important to note that once AKPK steps in, you will have to surrender your credit cards, agree to regular financial monitoring and be listed as on the AKPK programme (and thus will be unable to qualify for any further financial product in until all your debt is paid).
- Lifestyle changes: Whichever method you choose; the best thing you can do for yourself is to make the right lifestyle choices to ensure you clear your debt and stay on track with your finances. Understandably; you cannot be completely debt free as you will unlikely be able to pay for a house or a car on cash but a little will go a long way to ensure you do not rack up anymore consumer debt than is necessary.
Debt can be a problem and take its toll on you in more ways than one but with the right management; you can ensure it does not become the end of you.
[LCF note – with the recent reports by Standard Chartered in July 2013 showing Malaysian household debt ranks among the highest (182% of annual income) in the region, this reminder serves as a wake up call for us not to take bad debt or to over leverage while investing. ]