Are you buried by credit card debt in Malaysia and struggling to climb out? Well, you are not alone. Ruling out an unexpected windfall, there is no magical solution that will instantly settle your credit card debts.
That is not to say that there is no hope. Just as not all debts are the same, there are various ways to get you on the right track to a debt-free life. So, here are some tried-and-true methods and tips to pay off credit card debt.
What is Credit Card Debt?
As a type of revolving debt, credit cards allow you to borrow month after month, as long as you do not exceed the maximum credit limit. You will begin to accumulate credit card debt if you do not pay off your entire balance before the next billing cycle.
The balance carried over will be charged interest. To make matters worse, you will be charged a late fee if you miss payments or pay less than the minimum amount due each month. Since credit card interest compounds, paying less than the full balance causes interest to accrue on interest.
As such, the longer you take to pay off credit card debt, the more likely you end up owing more than what was initially charged to your card. Despite their bad reputation, credit cards are valuable tools that can help build credit history and improve your credit score when used wisely.
Top Strategies to Pay Off Credit Card Debt
Some may have fallen into the trap of credit cards due to emergencies like unexpected medical fees. However, paying off your credit card debt is possible if you commit to your decision and keep track of your progress.
For starters, you should create a concrete repayment strategy and stick to it. Here are several ways to help you get started:
1. Target one debt at a time
Debt snowball: Using the debt snowball method, you can first prioritise the smallest credit card debt amount. Once you finish off the smallest debt, you can continue to the next smallest amount. This can be a good motivator as you experience success upon gradually paying off your debts.
Debt avalanche: Those motivated by making the most savings can focus on the largest debt amount first. Unlike the debt snowball method, the debt avalanche approach focuses on saving more in overall interest. When you repay the bulk of your debts, you pay less and settle debts faster than the debt snowball approach.
As you focus on clearing the smallest or largest balance, you should also continue making the minimum repayments for your other cards. That way, you won’t end up paying late fees, increased interest rates and impact your credit score.
2. Pay more than the minimum amount
Paying the bare minimum will take you much longer to settle your credit card bills completely. Plus, you will pay more in interest as well.
Depending on your financial situation, you can make additional payments on top of the minimum amount to get out of debt faster.
3. Consolidate debt
Credit cards are known for their high compounded interest rates and other hefty fees. Thus, you can consider combining your balances into a single loan, ideally with a lower interest rate. The amount borrowed from the loan can be used to pay off the individual credit card bills.
With one consolidated sum, you only need to focus on making one payment every month. Alternatively, you could also opt for a loan with longer tenure to make lower monthly repayments. In doing so, you may need to pay a higher interest rate.
4. Review overall spending
Get your spending under control by planning a reasonable budget. Moreover, you should avoid using your credit cards and spend only on the bare necessities.
Over time, you may cultivate better spending habits that could lead to better financial health. Remember that taking on more debt makes paying off your credit cards an uphill battle.
5. Negotiate with credit card companies
Another option is to reach out to credit card companies to get more affordable terms and rates. Banks and credit card issuers may accommodate longstanding customers or good paymasters.
Keep in mind that your lender may offer lower interest rates, waivers or discounts that are contingent on specific conditions. For instance, not missing a payment, not exceeding the credit limit or staying loyal to their card.
6. Debt management plan
If your card debt is more than you can handle, it may be time for more serious measures to avoid spiralling into more debt.
With the help of a non-profit agency like the Credit Counselling and Debt Management Agency (AKPK), you can enrol in a personalised debt management plan. Under the debt management plan, your credit line is typically restricted, and you may have to forego obtaining new ones after you exit the programme.
Can I Refinance to Pay Off Credit Card Debt?
Homeowners with credit card debt can consider refinancing their property to secure a loan with lower monthly interest and repayments.
For example, here’s how you can use cash-out refinancing to pay off your credit card debt:
|Current property value||RM400,000|
|Outstanding loan balance||RM250,000|
|Refinancine loan amount = Current property value x 80% LTV||RM400,000 x 80% = RM320,000|
|Cash-out earned||RM320,000 – RM250,000 = RM70,000|
With the RM70,000 cash out, you can replace the high-interest credit card debt and have up to 35 years to pay off your lower interest refinanced mortgage loan.
Other Options to Manage Credit Card Debt
Home Equity Loan
- Aside from refinancing, you can choose to leverage your property’s equity as collateral through a home equity loan. Typically granted as a second mortgage on your home, you can use the sum to pay off your card debts.
- While the interest rates are lower than that of a personal loan, failure to make repayments may lead to the foreclosure of your home.
- Those who do not own property can choose to take out a personal loan for debt consolidation. Assuming you meet the lender’s requirements, you can consolidate your multiple credit card debts under a personal loan with lower interest rates.
- Moreover, it is also suitable if you only want to borrow relatively small amounts and need quick disbursement.
How Bluebricks Can Help You
As a comprehensive loan solutions provider, Bluebricks can help you consider your options for the best way to manage your credit card debts.
With our refinance housing loan rejected services, we also provide consultation and efficient solutions to help you reduce your debt as efficiently as possible.
A Trusted Loan Specialist in Malaysia
Bluebricks is a professional loan specialist with years of loan consultancy experience and extensive loan rejected services up its sleeve.
At Bluebricks, we offer FREE consultations as well as CTOS and CCRIS reports to enhance your chances of approval for your application. If you need cash urgently to settle your debts, Bluebricks is also a licensed money lender.
Credit Card Debt in Malaysia — FAQs
Depending on your debt amount and your financial situation, there are many options to consider. Here are some commonly asked questions that may be able to help you make the right decision.
1. How does my credit card debt affect my credit score?
If you accumulate card balances, your credit card issuer or bank may share the information to Bank Negara Malaysia. Subsequently, BNM may provide access to said information to credit reporting agencies, like CTOS and Experian (upon your consent). When you apply for a new loan or credit card, other creditors will be able to view and evaluate how trustworthy you are.
2. Will repaying my credit card debt improve my credit score?
As you consistently repay your debt, you will lower your credit utilisation rate. As such, your credit score should gradually recover after a few months.
3. Should I cancel my credit cards?
This would depend on the type of credit card and your spending habits. If you can control your spending, owning a credit card is not necessarily bad. Moreover, closing a credit card that you have had for a long time may cause your credit score to drop.
Before you cancel your credit cards, be sure to plan ahead as you might face some difficulties in your future loan application. This is especially the case if you do not have sufficient credit history (without a current credit card, car loan or home loan).
However, if you no longer have any use for the credit card and you do not want to pay the annual fee, closing the card could be the right choice.