Falling behind on your loan payments can easily cause sleepless nights
– if not nightmares, when pondering the thought that the home you have or car
you own could be repossessed at any time.

There is no simple solution when you’re faced with growing debt,
especially those that you’re struggling to settle.

However, there are options available when you’re having problems
repaying your loan.

Credit Card

Paying the minimum

If your credit card debt’s been piling as of late, then making minimum
monthly payments is the least that you can do – but in the long term, it’s not
going to settle your problem, says Success Concepts Life
Planners chief executive officer Joyce Chuah.

“Repaying the minimum won’t get you out of credit card debt as it could
take years to repay the loan in full.

“If you have a credit card debt of RM10,000 and only repay the 5%
minimum each month and the interest is 17.5% per annum (which is the maximum
credit card interest charged; if you are prompt in payments for the 12
consecutive months, then it falls to 13.5% per annum), you will only repay the
total debt in full only after 88 months – chalking up extra interest charges of
RM3,896!”

Should you get a loan to repay your debt

Chuah believes this is an option, but there are others of course.

“As long as the new loan interest rate is lower than the credit card
interest rate. Many other loans qualify. Just never go to the Ah Longs.”

Other options

Chuah says one should find other ways to supplement one’s income to
help settle one’s debt.

“Can you earn more? Do you have a skill or hobby from which you can
earn a new stream of income? Can you be more frugal? There are many ways to cut
down on personal expenses. We usually don’t because we don’t scrutinise our
daily habits.

“Check if you can take out any equity from your home? Some may have a
home loan and the OMV (open market value) of the loan has risen and hence there
may be an opportunity to refinance the loan and obtain an overdraft (OD) tied
to the loan. Usually the OD has a rate as attractive as the home loan.”

Chuah adds that using a low interest rate loan (like the OD) to repay a
high interest loan (like the credit card) is prudent and can help save a person
thousands of ringgit.

Another option is to sell liquid assets to repay the credit card debt,
Chuah suggests.

“Do you own stocks, unit trust funds, even insurance plans that you can
raise cash from to repay the debt. This is so long as the liquid assets cannot
return you more than the 17.5% interest that the credit card charges you.

“There is no point keeping an asset growing at 8% per annum while at
the same time you are charged twice the amount by your credit card company. The
net effect on your money is negative.”

One could also try contacting the bank to restructure the loan.
Renegotiate the loan terms
“Well this is a question that needs a comprehensive answer. If you
cannot repay the loan, is it because your income generation has been affected
or some other liquidity event has impacted you temporarily. We would have to
look at what other options you have to resolve the liquidity issue within the
short term and what are some possible long-term solutions.
 

“They will be willing to help when you are willing to negotiate and
repay your outstanding balances. Also, one could also try borrowing money from
a trusted friend and/or family member. Pay them back in kind (akin to interest
payments) in terms of your time, energy or skills where they need it most.”

Vehicle Loan

Review and adjust

If you’re falling behind on your vehicle repayments, contact the lender
to renegotiate the terms. However, before doing that, it’s best to review and
adjust current budget plan, especially in terms of reduction in expenses,
says Standard Financial Planner Sdn Bhd’s Jeremy Tan.

"This is so as to cover the shortfall of the instalment amount. Also,
it is always good to be practical and to inform the bank on the inability to
service the loan and renegotiate the terms, such as extending the tenor and
hence a lower repayment amount.”

Selling off the vehicle

Selling off your vehicle to pay off the loan is an option, provided of
course that the value of the car is worth more than the loan sum outstanding.

“However, if the market value of the car is lower than the amount
owing, it may not necessarily pay off the balance of the loan, but it is an
option to be explored. At least with a substantial portion paid off, the
balance to be paid will be in monthly instalments and would be less.”

Letting the car get repossessed

Tan believes that repossession is not a viable option.

“It may incur more cost and affect an individual’s credit rating, or
capacity to borrow in the future for other mortgages.”

He notes that by having the car repossessed, the legal cost borne by
the bank will be imputed to the borrower, which includes repossession fees that
are either charged or levied.

Property Loan

If you’re struggling to repay your property loan, a viable option would
be to contact the bank as soon as possible and have the terms renegotiated,
advises MyFP Services Sdn Bhd managing director Robert Foo.

“Yes it is definitely possible. Many times it is not advantageous to
the lender to go for legal foreclosure. They would prefer to restructure the
loan with you if that can be done,” he says, adding that foreclosure will have
an impact on a person’s credit score.

Consider renting/selling the property for profit

Foo considers this an option but adds that it is something that should
be well-thought off first.

“Yes, it could involve renting the place out or selling the property if
that seems to be the best option. But we have to look at the issue in totality
based on the client’s actual circumstances.”