Credit cards have become a part of life in Malaysia. But as much as they make life a lot more convenient; credit cards can also lead to an unmanageable amount of debt. In some cases, credit cards have even led to bankruptcies.
If you have a credit card debt that seems to be
spiralling of control, it may be the right time to consider debt consolidation.
In Malaysia, there are two common debt consolidation methods that are highly
workable.
1) Credit Card Balance Transfer
Balance transfers offer a number of different
benefits, including lower interest rate and the ability to simplify your credit
card debt payment process.
How Credit Card Balance Transfers Can Work for Debt Consolidation:
● If you have accumulated a significant amount of credit card debt, there
is a good chance you are currently being charged the maximum interest rate.
Based on the tiered interest rate structure adopted by banks in Malaysia, this
maximum rate is generally 17.5% p.a.
● If you are paying the maximum interest rate, you are probably finding it
quite difficult to keep up with your credit card debts. High interest rates can
cause your credit card balance to rise quickly. For example, if the amount you
owe on your credit cards is RM10,000, you are essentially adding RM146 in
interest to your debt each month.
● A credit card balance transfer could give you a break from paying high
interest. In some cases, you'll find balance transfer programmes that offer
zero interest rate, at least for the first year or so. By taking advantage of
one of these offers, you will have a better chance of paying your debt off.
● Banks often charge a once-off fee of 3% when transferring a credit card
balance. However, in the long run you will still end up paying less, due to the
lower interest rate.
Example of How Much You Could Save:
Credit card average maximum interest rate =
17.5%
Lowest known interest rate for balance transfer
(for a limited time) = 0%
Amount you could potentially save on interest
(for a limited time) = 17.5%
2) Personal Loan
The concept of taking out a personal loan in
order to pay off credit card debts might sound a little unusual. However, if
you take a strategic approach by taking advantage of interest rate differences
between personal loans and credit cards, this method can actually work quite
well.
How Personal Loans Can Work for Debt Consolidation:
● If you have accumulated a significant amount of credit card debt, there
is a good chance you are currently being charged the maximum interest rate.
Based on the tiered interest rate structure adopted by banks in Malaysia, this
maximum rate is generally 17.5% p.a.
● The interest rates on many personal loans are far lower than credit card
maximum interest rates. For example, some personal loan interest rates in 2013
can be 9.88% p.a. or less, depending on your loan amount and term. If you are a government servant, the rate
dives even lower.
● If you take up a personal loan with significantly lower interest than a
credit card’s, you could technically be paying much less over the long
run. The savings you’re getting from
your interest could even help offset the charges and fees associated with the application
for a personal loan.
Example of How Much You Could Save:
Credit card average maximum interest rate =
17.5%
Known interest rate on a personal loan = 9.88%
Amount you could potentially save on interest =
7.62%
This article is brought to you by iMoney.my -
the first website in Malaysia comparing credit
cards, loans and mortgages - free of charge and
independently.
Indeed it's a great tool of financing, yet too many people can't control their lust and ended up in financial crisis of their own.
ReplyDeleteBefore using one, he/she should have some financial knowledge and management skill.
Thanks a lot for the nice and helpful information..Good one
ReplyDeleteThank you for such a great help
ReplyDelete