Having a little Debt or having too much Debt to pay off? Figuring out a way to pay off your Debt? This might be something normal to us in our daily life. Most of us have all sorts of Debt including cars, credit card & housing loan. Some of us choose to pay according to the installment period or some of us choose to pay more to reduce the interest. Most important of all, we are trying our best to minimize our Debt as much as possible. Agree?
It is important to have plans to clear our Debt as some of it serves high interest that might cause additional money.
First We Need to Look at the Difference between 2 Types of Debt :
- Good Debt – It can be considered an investment that will grow in value & generate extra income. Student Loan & Mortgage Loan can be considered as Good Debt.
- Bad Debt – Its a borrowing where the value of your purchase will drop & does not generate any extra income. Usually it will also carry high interest rate. Example of Bad Debt are Car Loan, Personal Loan & Credit Card Debt.
List of the Most Common Debt in Malaysia :
- Student Loan – Most of us are stuck with this Debt when we study & we need to pay it upon Graduation. Congratulations Grasshoppa! You just made your first Debt. LOL. Usually for PTPTN loan, they have minimum payment based on the amount you borrow. The minimum amount is as low as RM80 a month. Most Malaysian took advantage of this & not paying on time. Result? Some of us are not able to travel out of Malaysia. You can start to pay the minimum amount first. Once your “EPF Account 2” have more money, you can use it to pay your PTPTN loan.
- Mortgage Loan – It depends if your Loan is under Term Loan or Flexi Loan. Most of the bank are offering Flexi Loan instead of Term Loan. Total Interest for your 35 years Mortgage is almost as high as your house purchase value. Do you want to pay such a high amount for your loan? If you cut your loan terms by half, you are paying only 1/3 of the total interest. Why want to pay extra when you can reduce the interest? Rounding up your monthly repayment will also help you to reduce the interest.
- Car Loan – Driving a nice Honda Civic while spending 1/3 of your salary to pay your car loan? Do you include your Yearly Roadtax, Insurance, Petrol & Maintenance Fee? How much do you actually have after you include all other expenses? If you havent buy the car that requires 1/3 of your income, Congratulations you are safe from this Bad Debt. Try to buy a car that only spend 1/5 or 1/6 of your salary.
- Personal Loan – Taking Personal Loan for business purpose is good. But if you are using it for Money Game Investment, Holiday, Paying Debts or other reason, you are in trouble. Its good to save before you spend & not spend before you save.
- Credit Card Debt – Before you even spend on your Credit Card, your card might be charging you Annual Fee. Thats an extra charges that you can avoid. Its good to have Credit Card to manage your expenses but misusing it will cause debt. Paying 15% Interest Rate Per Annum for your Credit Card Debt is totally not worth it. Lesson to learn is, dont overspend on your Credit Card purchase.
Now….. How to Pay Your Debt Fast?
- Identify Your Debt & Amount – Knowing which debt you have currently & the total amount will help you in your planning.
- Prioritize High Interest Debt – Now you can prioritize which debt to pay once you identify your debt. You can start by prioritizing the highest interest debt such as Credit Card Debt followed by Mortgage Loan, Car Loan & others.
- Timeline – Set a target timeline on when you plan to clear your debt. You will get a better picture on how much to pay according to your targeted timeline.
- Pay More – Start paying extra amount for the Highest Interest Debt to avoid High Interest.
- Save Before You Spend – Start allocate some cash savings & pay your debt once you have certain lump sump.
- Work Part Time (Optional) – If you have extra time to earn extra money, why not? There’s many way to earn extra cash & the most convenient one is to be a Grab Driver.
Its definitely not easy to get out of debt. But if you have good discipline, the process might not be as hard as what you think. All you have to do is to start planning & you are set to clear your Debt.
SO…… WHAT’S NEXT?
AND ONCE YOU DONE PAYING…….
YOU CAN START TO SAVE & INVEST WITH YOUR EXTRA MONEY 🙂