Being in debt is the last thing any Malaysian wants in their list. By the end of June 2019, the household debt in Malaysia reached 82.2%. This was one of the main reasons why the GDP growth stood at 4.4%, which was the slowest pace in a year.
The economic expansion for the second consecutive year took a significant blow due to this. This rate is the highest in Asia when compared to other nations such as Japan (58.2%) and the United States (75.0%).
What is debt counselling?
Are you in a dilemma where you cannot control your financial situation? Or whether to take a loan or not. And how to repay back your debt?
Debt counselling involves financial advisors working with debtors to understand their financial situation and develop solutions. Services include:
- Reviewing income, expenses, debts and assets.
- Advising on budgeting and money management.
- Negotiating repayment plans with creditors.
- Recommending debt management options like consolidation, loans, debt schemes etc.
Benefits of debt counselling
Discussing with an expert counsellor will help you to gain a tighter grip over your financial situation.
- Avoid bankruptcy by developing affordable repayment plans.
- Lower interest rates by consolidating debts or negotiating with creditors.
- Improve credit score by managing payments and avoiding defaults.
- Receive emotional support and advice from experienced advisors.
- Gain control over finances through better money management.
You might think that the concept of financial counselling is relatively new, but the fact is that in developed countries such as the USA, if you want to file for bankruptcy, it is mandatory to attend a few sessions of financial counselling with an approved credit counselling agency within the six months of filing the petition.
Debt counselling is a process by which a credit counsellor guides an individual to prepare a proper budget and plan to manage his financial situation to effectively get relieved from the debts.
Credit counselling carefully presents a debt management plan to the individual which is custom-tailored to suit their unique financial situation.
In some instances, debt counselling also involves negotiation with the creditors to enable the debtor to effectively tackle the burdening financial situation.
What is the root cause of credit card debt?
Bad planning, unexpected events, accidents etc. can leave you in debt which might last for years. By understanding the root cause of debt, it is possible to make better financial decisions.
Following are some common causes of credit card debts in Malaysia:
1. Loss of income
Losing the primary source of income is one of the main reasons why many Malaysians are pushed to debt. Reports have indicated that due to the COVID-19 crisis, over 2 million citizens have lost their jobs.
Many of the debtors were laid off or fired or had a sudden loss in their business. By having an emergency fund, you could easily safeguard yourself from unexpected expenses.
2. Medical expenses
This is one of the main reasons why many people end in debt. An unexpected injury or illnesses can be devastating to many, not to mention the soaring medical bills.
It is almost impossible to predict what will happen to your health in the future. Putting financial safeguards in the right place will help to mitigate the risk of financial ruin when any major health issue occurs.
Having an emergency back up fund would be a great life saviour. If you have savings that are good enough to cover the expenses of six months or one year, it will cushion your fall when an unexpected financial crisis happens.
3. Divorce
When a harmonious marriage ends, it not only has far-reaching consequences on personal relationships but also on your financial income as well. All of a sudden, you will find a sudden decrease in your financial income.
Separation from matrimonial bonds also means that you will have to sell your house and other personal assets at an inappropriate time along with massive legal costs as well.
One person may end up being responsible for providing child support or monthly maintenance.
If the couple finds no other option to settle their family issues, supporting each other financially for a certain period could help to reduce a significant burden. You could also cut down the cost of divorce to a great extent by using a mediator or arbitrator to settle the divorce proceedings amicably.
4. Educational cost
In Malaysia, many young people find themselves saddled with a financial burden as a result of the educational loan they have taken at an early age. Parents can give a helping hand by providing some financial assistance to their children while they are at college or helping them choose an educational loan that will have lesser interest or tax advantage.
Recent data shows that in 2022, 69.1% of higher education graduates in Malaysia were employed, while 16.6% of them were still in search of employment opportunities.
Unfortunately, the number of graduates without employment in Malaysia has seen an upward trend recently. There was a 22.5% hike in the count of jobless graduates, climbing from 165,200 in 2019 to 202,400 in 2020.
This situation has forced a large portion of young adults to default on their student loans, credit card debts, personal loans, etc. If you don’t have family support for your education, you could use some of the tips to reduce your financial burden.
- Selecting a school based on overall value rather than prestige will help to lower the cost of your education. When compared to private schools, public schools are cheaper.
- By working part-time after college hours.
5. Unanticipated emergency
For most people who haven’t prepared beforehand, an emergency will have a toll on their financial health. Say, for example, you crashed your car and realise that the insurance company only pays you a portion of the damages. The repair costs could lead you in heavy credit card debts for the next few years.
Having a fund for an emergency will help you to cover up the financial mess and not to rely on credit cards or to take loans.
6. Not having proper insurance
For many people, insurance might seem like a waste of money until they find themselves in serious debt when a horrible event hits their lives.
Having an insurance plan is a vital part of financial planning. Every individual should conduct a review of their policies periodically to ensure that their goals are good enough to cushion the blows of any worst-case scenario.
7. Change in lifestyle
The 21st edition of the Malaysia Economic Monitor has reported that about 27 per cent of people in Kuala Lumpur earn less than Bank Negara’s estimated monthly living wage, which is 2,700 ringgit.
Households with income way below the estimated living wage tend to take personal financing loans and credit cards to keep up with great lifestyle choices.
In Malaysia, personal financing loans and motor vehicle loans constituted 49 per cent of the total bankruptcy cases in 2018.
Studies have shown that the generation born between 1981 to 1996 are more prone to impulsive buying behaviour due to easy access to personal loans and credit card financing.
How to get debt counselling in Malaysia?
Debt counselling provides professional support to address debt problems before they spiral out of control. Saddled with excessive debt?
Debt counselling in Malaysia offers a lifeline by providing financial advice and support to individuals grappling with unmanageable debt. By reviewing the debtor’s financial situation, counsellors can recommend apt solutions to alleviate their debt woes.
Help is available:
- Approach non-profit credit counselling agencies like AKPK and Credit Bureau Malaysia (CMB).
- Consult financial advisors at banks offering debt management services.
- Engage private debt counselling firms for personalised assistance.
- Obtain free preliminary advice at no upfront cost.
What to expect from a debt counselling session?
- Financial assessment: A thorough review of your income, expenses, debts, and assets.
- Personalized advice: Recommendations based on your unique financial situation.
- Action plan: A step-by-step plan to address your debt and improve your financial situation.
- Education: Information on managing finances to prevent future debt problems.
What is APKP?
Agensi Kounseling dan Pengurusan Kredit (AKPK) or in simple sense is a Credit Counselling and Debt Management Agency. It is a government agency that provides free counselling services and financial advice to individuals and businesses on budget management, cash flow management, credit and loan issues.
It was established by Bank Negara Malaysia (BNM) as part of the bank’s Consumer Protection Framework under its 10-year Financial Sector Master Plan.
The financial sector master plan has been designed to help the individuals to take control over their financial situation and to use their credit wisely.
It includes:
- Debt management programme to help the consumers to regain financial control.
- Counselling and giving advice regarding financial management.
- Financial education for better credit management skills and responsible use of money.
According to recent data from the Malaysian Department of Insolvency (MdI), bankruptcy rates in Malaysia have been fluctuating in recent years. Here are the latest statistics:
- In August 2023, the number of bankruptcies stood at 452,000, but it decreased to 391,000 in September 2023.
- Between 2018 and May 2022, a total of 46,132 Malaysians declared bankruptcy, with almost 60% of them falling between the ages of 25 and 44.
- The primary causes of bankruptcy were personal loans (42%), vehicle purchases (15%), and business loans (13%).
- The decrease in bankruptcy cases could be linked to a 2020 amendment in the Insolvency Act,raising the bankruptcy threshold from RM30,000 to RM100,000.
However, the data spanning from 2018 to 2022 highlights a significant number of bankruptcies in Malaysia, with personal loans being the predominant cause for individuals filing for bankruptcy.
Excessive borrowings and uncontrolled credit card usage were the two prime reasons which dragged several thousand Malaysians into bankruptcy.
The borrowings include:
- Personal loans (27.76%)
- Hire purchase (24.73%)
- Housing loans (14.09%)
- and credit card (9.91%)
The current demographics of Malaysians who are messed up with debt are aged between 30-50-year-old—personal loan and credit cards from a lion share of the present-day debt. Currently, there are over 3.6 million credit cardholders in Malaysia, with an overall credit card debt of RM 37 billion. Now, this is something to worry about.
For someone who has no prior knowledge or experience in handling finances, debt management can be cumbersome, especially if they have hit rock bottom in debt.
However, with expert assistance, the customers can work with a realistic plan to be debt-free as soon as possible.
In a report published by APK, In the last year over half of the Malaysians have reported difficulty to raise RM1,000 for emergencies.
One out of five adults has been informed that they have not saved in the past six months.
The study also revealed that interestingly 3 out of 10 individuals had to borrow money for their basic needs.
According to Aladdinzaddin Ngah Tasir, CEO of AKPK, one could make use of the promotions offered by credit cards.
This includes 50% cashback when you dine out, provided the person should pay back the money at the right time.
How is the AKPK beneficial to Malaysians?
1. Financial Education
AKPK has dedicated one of its branches to impart financial education to educate young working adults and anyone interested in gaining financial knowledge.
These services are designed to help individuals regain control of their debts and improve their financial well-being. Here are some of the services provided by AKPK:
- Workshops
- Roadshows
- Seminars and
- Consumer education programs
The primary goals of this branch are to boost up and safeguard economic development as more young citizens will be well equipped to handle their financial challenges effectively.
2. Debt management programs
Debt Management Programme (DMP): AKPK’s DMP is a personalised program where individuals work closely with financial advisors to develop a customized debt repayment plan. This program helps individuals in managing their debts and achieving financial stability.
If you sense that you are in a challenging financial situation and not able to repay the debts, then you can seek the help of AKPK. The basic requirements to apply are:
- Has enough income after meeting one’s expenses
- The debt should not be more than RM2 million
- The individual should not be bankrupt.
- The individual must not be in an advanced stage of litigation with banks.
The experts at AKPK will do a detailed review of all your income and expenditure. After that, they will start a series of conversations with the bank to reach a repayment amount amicable to both the parties.
Once an agreement is reached a formal letter will be issued to start the repayments.
Please note that once you have applied, you will no longer be eligible to apply for any other loans from a bank until the decided amount is paid back in full.
Depending on the financial health of an individual, the debt management program can extend up to 6-8 years.
How to get counselling help?
The organisation has over 26 counselling offices and 11 branches all across Malaysia. You can log in to the official website of the organisation for more details.
Proposed Consumer Credit Act
Malaysia is also setting the stage by introducing the Consumer Credit Act (CCA), aimed at regulating non-bank credit providers and promoting fair practices within the credit industry.
The CCA, to be rolled out in two phases from 2024 to 2025, will require non-bank credit providers to adhere to a set of minimum standards, ensuring a transparent and efficient credit marketplace for consumers.
Final Words
Being in debt is the worst situation for anyone who is starting with their life.
Effective management and a well-structured payment plan is one of the critical steps in taking your debt effectively. No matter how deep your financial liabilities are, expert assistance can help you sail smoothly across the turbulent sea of your financial stress.
Remember, when it comes to debt, a stitch in time saves nine.
