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Your Poor Spending Habits Don't Have to Control You, Here's How to Be Free!

BY Team Loanstreet

Updated 11 Nov 2019

You're stuck with huge credit card debts, that's understandable. It all began when you maxed out your first card during an emergency, and then you swore to never get another one. Until you did, because another emergency happened.
You’re not alone. According to a report by The Star in 2017, Malaysia has 3.6 million credit card holders with RM36.9 billion outstanding balance! The report added that 43.6% of total cardholders only pay up at least five percents of their outstanding balance, while 12.8% don’t even pay the minimum before or within the due date.


What's covered in this article?

Your face when the monthly due date is coming.

“Capitalism!” You scream. A vicious cycle to keep you in the rat race!
But it doesn’t have to be that way. It’s not too late for you to start taking action and get yourself out of this financial burden. And in this article, Loanstreet and our friends at Yayasan Ihsan Rakyat (“YIR”) and Yayasan Dewan Perniagaan Melayu Perlis Berhad (“YYP”) are going to list the options to do so. 

But before that, we want to talk a little bit about…

Yayasan Ihsan Rakyat (“YIR”) and Yayasan Dewan Perniagaan Melayu Perlis Berhad (“YYP”)

YIR & YYP serve Malaysian government staff and work closely with the government to collect and manage contributions so they can empower the people that need them the most.

They offer personal financing with the profit rate from as low as 6.99% per annum. So regardless of your needs – be it settling your debts, covering medical expenses, or starting your own business – now you know two organizations that can help achieve your goals!

Talking about settling debts, let’s dive straight into the first method of finishing them, which is…

1. Using the snowball method

Imagine that poor guy as your PTPTN loan.

In the first two methods of this article, we are going to talk about debt repayment strategies. These strategies require nothing else other than your discipline, willpower, and of course, hope. The first one being the snowball method.
In a nutshell, the snowball method is a debt payment strategy where you pay off debts in order from smallest to largest, gaining a momentum as each debt is settled.
Here’s how it works:

Step 1: List your debts from smallest to largest
Step 2: Make minimum payments on all your debts except the smallest
Step 3: Pay as much as possible on your smallest debt
Step 4: Repeat until each debt is settled
This method doesn’t just work for credit cards, but all of your debts as well. Let’s put this into an example. Say you have these five debts, from the smallest to the largest:
  1. Credit Card A: RM1,500
  2. Credit Card B: RM3,800
  3. Personal Loan A: RM10,000
  4. Personal Loan B: RM18,500
  5. Car Loan: RM21,000
  6. PTPTN Loan: RM45,000

Of course, before you even start on these steps, you would have to modify your spending behaviour to squeeze every single Ringgit aside. This means cutting all unnecessary expenses including that overpriced postpaid plans you never fully used anyway.
After trimming down your expenses, paying rent, bill, and petrol – you are left with RM1,000 a month.
Instead of using this RM1000 to pay a little extra on all loans at once, you would only make the minimum payment on everything so you can focus the rest of the money on Credit Card A. 

Within two months, you would have paid off this credit card and never have to think about it again.
Now the extra money freed from Credit Card A could be used to settle Credit Card B within four months. This process would repeat, and by the time you reached your biggest debt which is the PTPTN loan, you would have so much more extra cash accumulated for it, hence the term ‘snowball'.
This method works because it is so satisfying to see one debt out of your life forever, and motivates you to work on the next one until you become fully debt-free. It is also very attractive to beginners because of how easy it is to manage.
But if you’re looking for something a little more advanced, you could be…


2. Using the avalanche method


9-year MyVi loan, look out!

While the snowball method focuses on paying the smallest debt first, the avalanche method focuses on paying the debt with the highest interest rate first.
Using the same example as before, here’s how it would look like with the avalanche method:
  1. Credit Card B: RM3,800 (18% interest per annum)
  2. Credit Card A: RM1,500 (15% interest per annum)
  3. Personal Loan B: RM18,500 (13% interest per annum)
  4. Personal Loan A: RM10,000 (6% interest per annum)
  5. Car Loan: RM21,000 (3% interest per annum)
  6. PTPTN Loan: RM45,000 (1% interest per annum)
As shown above, we prioritize Credit Card B over Credit Card A, and Personal Loan B over Personal Loan A, due to their higher interests. With this method, you could save up to thousands of ringgits over the span of a few years.

Of course, this method requires a higher level of kiasu-ness, so be ready to create a spreadsheet that you would obsess for years to come.
So far we have talked about behaviour modification strategies that don't require the help of anyone else, not even your friends and family. But what if you're really desperate, is there any third-party help you can reach out to? Well, one way is by…

3. Settling your credit card with… another credit card!

Are you for real Loanstreet?
This might sound counterintuitive at first. After all, why would you ever want to settle your debts by… going into another debt? But wait, don't close your browser tab just yet! 

If you've never heard of debt consolidation before, it's an option where you take one big loan to pay all of your smaller loans at once. In other words, debt consolidation simplifies your payment. Instead of having multiple bills with different loan periods, interest rates, and deadlines – you only need to worry about one bill.

There are two popular types of debt consolidations:
Let’s talk about the first one. As the name suggests, you can consolidate the balance from multiple cards into one. 

Balance transfer credit card typically offers a lower interest rate to settle the debts. While a normal credit card would have 15%-18% interest rate p.a., balance transfer credit card could offer as low as 0% interest rate p.a. on the debts transferred (not applicable to your regular spending on that credit card). 

Do take note that such offers typically have their caveats. Firstly, some of them might charge you an upfront handling fee. Secondly, the 0% interest rate might only be applicable if you could settle the debts within 6 months, or the rate would start increasing dramatically. 

But come to think of it, if you have the money to settle the debts within 6 months, you most probably have settled each individual cards a long time ago, isn’t it?

That being said, let’s move on to the second method of debt consolidation…

4. Settling your credit card with a personal loan

“I take her, my lawfully wedded wife, along with the 10-year personal loan for this wedding“

Debt consolidation via a personal loan is really straightforward. Again, you consolidate all of your credit card debts (or any debts for that matter) into one loan. This simplifies multiple debts into one, making it convenient for you to focus on just one bill.

However, unlike a balance transfer credit card which is a specific product tailored for settling credit card debts (hence, most of them typically have similar offerings), personal loan gives you a much wider option. There is no specific product for it so you can go with any loans that are best suited for your needs.

So what are those needs? Do you need a loan that gives you the lowest interest with high monthly payment? Or do you need one that gives you more flexibility yet doesn’t penalize you too much for long-term settlement? 

You also need to assess your current situation such as your employment and current financial records.

Certain loans have specific priorities that you can take advantage of. For example, YIR & YYP give fast approval for government staff and government-linked companies’ (“GLC”) employees. So if you are one of these two groups, you know you are already in front of the queue. 

Then of course, take a look at their profit rate. Again, with YIR & YYP, their profit rate starts at 6.99% p.a., which is definitely lower than most credit cards at 15%-18%. 

So have your calculator ready, do your math, then have proper sleep because math is hard, and repeat until you have a solid plan to settle your debts, once and for all.

Acknowledging your financial situation will go a long way

The first thing you need to do is to sit down and figure out how much you owe. It might be daunting to have that knowledge, but it's the first step towards your financial freedom.
If you're considering debt consolidation, make sure the calculation checks out. Use a credit card calculator to know how much interest you would accumulate by paying your cards a specific amount every month, and compare it to the interest provided by the banks.
There's a lot of banks that provide different offers, even servicing different markets. So make sure you analyze the ones that could give you an upper-hand. Like we have mentioned, if you are a government staff or a GLC employee, you can take advantage of YIR/YYP that are catered specifically for you.
So if you play your cards right, you could get lower interest rate and get out of debts faster. 
At the end of the day, it really boils down to you changing your spending habits. Even after settling all of these debts, you need to make sure that you'll be more conscious on your every financial decision. And if you need a little nudge to finding the best government personal loan for you, check out Loanstreet's comparison tool to get instant quotes right at your fingertips!
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About the Author

Team Loanstreet

Run by a professional human-sized team, get resourceful tips & guides from our very own library of financial articles that can help improve your financial lifestyle & make a well-informed money decision. We strive to provide you with the best service in helping you to get the most out of that DUIT!


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