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COVID-19 – LOAN REPAYMENT – CREDITWORTHINESS – TARGETED REPAYMENT ASSISTANCE (TRA) – METHODS – DEBT AVALANCHE – DEBT SNOWBALL

The Malaysian government has announced a three-month extension to the loan repayment moratorium for individuals who have lost their jobs and yet to find new employment during the Covid-19 pandemic – the Targeted Repayment Assistance (“TRA”) Programme. This programme is to assist those who face difficulties in continuing their debts during the Covid-19 pandemic. But a loan is a loan. Sooner or later it needs to be paid. Otherwise the creditworthiness of the individual can be compromised.

 What is Creditworthiness?

  • Creditworthiness is what the lender will determine whether an individual is eligible for acquiring a loan before the lender approve any new borrowings to the individual.
  • Creditworthiness plays an important role in having the required loan applications approved.
  • Creditworthiness is a measure of how well an individual manages their debts.

Two (2) Distinct Strategies to Settle Outstanding Balances

  • Debt Avalanche method
  • Debt Snowball method

 Debt Avalanche method

  • Prioritizing debts with the highest interest rates.
  • Paying off debt starting from highest rate to lowest interest rate, regardless of balance.
  • Debt avalanche method involves making minimum payments on all debt, then using any extra funds to pay off the debt with the highest interest rate.

 Pros

  • For individuals with larger amounts of debt, the avalanche method can reduce the time it takes to pay off the debt.
  • End up paying less money overall – provided the individual stick with the payment plan as the individual do not skip a month or two of strategic repayments.

Cons

  • This method requires discipline and commitment to pull off.
  • Also, it requires constant amount of discretionary income.

 Debt Snowball method

  • Prioritizing smallest debt.
  • Paying off debts from smallest balance to largest balance, regardless of interest rates.
  • The debt snowball method involves making minimum payments in all debt, then paying off the smallest debts first before moving on to next smallest.

Pros

  • Builds motivation by settling debts fast.
  • Forces the individual to stay intentional about paying one bill at a time until the individual is debt-free.

Cons

  • End up incur more interest.
  • More expensive overall.
  • Can take longer time to become completely debt-free.

Consequences for Late Loan Repayment

  • The credit score of the individual will be affected.
  • The individual will be charged penalties.
  • The individual may be filed for bankruptcy by failure to pay off a loan timely.

Advice

  • If you are unable to tackle your debts by yourself, do seek help from recognised agencies that can help you come up with a debt management plan.
  • Make sure you go to a reputable organisation and not some unauthorised agent that claims to represent financial institutions.
  • The Credit Counselling and Management Agency or AKPK offers free advice and guidance to borrowers including options for debt restructuring.
  • There are other agencies, including Creador Foundation, which provides financial literacy education for low and middle income adults via Multiply.
  • Whatever your financial situation may be, take time to review it and safeguard your creditworthiness.
  • Prioritize your essentials and do not let your bill grow faster than you can pay them.

If you need any assistance for loan, please do not hesitate to log on to our website at https://yhalaw.com.my/secure-loan-application/.

Send us your details and we will get our professional mortgage specialist to understand your needs and apply loan for you.

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