Don't wait till debt takes you apart

PHOTO: Don't wait till debt takes you apart

MALAYSIA - MALAYSIANS are too busy earning a living, doing their work very well, spending most of their time researching and improving on their work that they have no conscious management of their finances, says Credit Counselling and Debt Management Agency (AKPK) CEO Koid Swee Lian.

These days, after people graduate and start working, they want to buy a car straight away, and banks are also quick to offer them a credit card.

Koid says students should bear in mind that the minute they graduate, most of them would have a student loan to pay off.

"So ask yourself Do you really need that car' and Can you afford it?' We are not saying don't buy a car but maybe don't buy it until you are financially more stable. It shouldn't be your priority. Try taking public transport for a while.

"Or if you buy a car, buy a small one or a second-hand one and be mindful of usage because petrol costs money. Don't spin it around the city like there is no tomorrow," she advises.

She has also noticed that when young couples get married these days, they want their house to be fully furnished, and so they buy all their household furniture and utensils on credit.

And if they can't pay in full at the end of the month, that would incur interest payment and finance charges, which Koid says are "unnecessary additional expenses."

"Youngsters buy on credit. Maybe it's peer pressure but they will buy something like six pairs of shoes in one go with their credit card which will take up their salary for a month. What they should be doing is spend within or below their means and be comforted (by the fact) that they are financially stable."

Koid also believes parents have a role to play in educating their children to appreciate the value of money.

"Youngsters tend to be self-centred. Parents have a role to play to manage their children's expectations. Parents are so used to financing the children that they don't know when to stop and the children are so used to taking money from their parents that they too don't know when to stop," she says.

Parents have to look after the welfare of all their children and not just one, and they also have to save up for their own retirement, she adds.

AKPK, which Koid heads, is a Bank Negara subsidiary that offers service and advice for free to people on how to manage their finances and debts. It also has a debt management programme to assist financially distressed consumers.

Poor financial literacy

Koid says Malaysians still have quite a long way to go on financial literacy.

"They seem to think that it is fine to pay the 5% minimum payment on credit cards because the banks allow it. And when the banks give them a higher credit limit, they think it is because the bank respects them!"

The Nielsen Global Survey on Investment Attitudes 2012 shows that less than 50% of Malaysians pay their credit card debt in full at the end of each month, a dismal figure when compared to Singapore, Japan, South Korea and Taiwan where 80%, 87%, 85% and 89% respectively settle in full.

If you have a credit card debt of RM10,000 and pay only the 5% minimum payment each month, it would take 7.3 years to pay it off and with an interest rate of 17.5%, you would have to pay RM3,897 in interest alone, in addition to the RM10,000.

She also cautions against standing as a guarantor for anyone who takes out loans.

Youngsters who want to buy cars sometimes mutually act as guarantor for each other, she says.

"They don't appreciate that a signature has a lot of significance. They should bear in mind that when the primary borrower doesn't settle the loan, as guarantor the bankers will go after them. When the borrower doesn't pay, your guarantee means that you will pay if he doesn't."

A number of people also find themselves financially strapped because of medical expenses in private hospitals. When they can't pay, they can be made bankrupt.

So Koid suggests that people who can't afford treatment in private hospitals go to government hospitals instead. She says her sister who had a major heart surgery at a government hospital paid RM407 in total for the procedure. The same heart surgeon who was also operating on patients in private hospitals was charging RM50,000 for the same surgery, she says.

She also tells borrowers not to run away or move from house to house to avoid their creditors.

"If they can't serve the papers on you after three times, they will publish it in the newspapers and the process to obtain a judgment sum against you will continue. And if they still can't get you to pay the judgement sum, they will go ahead and declare you bankrupt.

"If you have an outstanding balance of just RM300 and don't pay, over the years, with interest, penalties, and cost of legal proceedings, that amount can balloon to over RM30,000," Koid says.

At AKPK, she assures, borrowers are taught how to approach bankers and talk to them about how they are going to repay their loan or to ask for waivers.

"Bankers can be open and helpful," she says.