As we continue to face the dual economic and health crisis, Malaysians must also start getting their finances in order and make sure that they will continue to meet their financial responsibilities. However, with many still in a tight spot due to reduced salaries and retrenchments in the workforce, these financial commitments may be a challenge.

If you are in this situation, here are some strategies for handling your loans/financing and credit card commitments.

But first, you need to calculate two things: first, your total monthly financial commitments - your car, home, or personal loans/financing that you may have. Not to forget, if you have any credit card Easy Payment Plan (EPP) installments for large purchases you recently made, you need to include this into the total as well. Secondly, you should also identify how much you can repay each month during this period (let’s call this your repayment budget). Knowing these figures in mind will make it easier to decide your next steps.

Find short-term income opportunities

In this “new normal”, there has been a spike in on-demand services, such as food or parcel delivery and ride-hailing. More platforms are actively hiring short-term or part-time roles to meet this demand, making this an opportunity to create a temporary income stream to meet your financial commitments.

On top of that, there are also various freelancing opportunities if you have the right technical skills to meet them. From creative skills such as copywriting and photography/videography to more technical ones such as SEO management and coding, these jobs are often listed online. Most freelance jobs can be done remotely, which means you can work with a client that’s based anywhere around the world!

Whether you are on reduced salaries or still looking for a new job, these “side hustles” can be a good way to increase your repayment budget and help you meet your monthly financial commitments. Just remember that this income is meant to meet your financial obligations, so try your best not to splurge.

Convert higher-interest facilities into term loans

If your current repayment budget is below your total monthly financial commitments, you will need to look into ways to manage your debts quickly – don’t just pay the minimum amount for all of them and hope for the best! This is because different credit facilities have different terms and interest/profit rates.

In a low-OPR environment that we are currently experiencing, an existing home loan/financing may actually become “more affordable” due to the lower prevailing interest/profit rates. Finally, credit cards are not affected by OPR (Overnight Policy Rate) at all, and start charging interest/profit if you do not pay the full outstanding balance at the due date – it is by far the most expensive credit facility to own if you cannot repay in full.

(OPR is the interest rate at which a bank lends to another bank, which is set by Bank Negara Malaysia. A lower OPR rate means lower loan interest rates and lower returns for savings accounts and fixed deposits. The reduction in the OPR provides additional stimulus to accelerate the pace of economic recovery.)

You should take the necessary steps to ensure that you do not neglect your loan obligations and if you are not able to do so, you should seek the help and options available to you from the banks. The goal is to set your finances straight so that you are able to clear off debt more quickly within your current repayment capabilities.

Credit cards are useful payment instrument tools and having one will certainly be beneficial at times where “contactless” transactions are the way to go due to current pandemic situations. However, spending wisely is necessary so that you do not rack up debts and lose track of your expenditures which you may not have the ability to repay. If you are currently in this situation, please be aware that there is the option to convert them into term loans with lower prevailing interest rates. So it is, therefore, important to sort this out with your bank and manage your credit card debts soonest possible. The problem with credit cards will not go away by simply ignoring the matter and may affect your CCRIS (Central Credit Reference Information System) record and creditworthiness.

Home financing, personal loans and hire purchase loans are generally repayable based on a monthly repayment schedule. However, based on the current circumstances with the pandemic, it is pertinent to seek alternative repayment options if you are not able to resume repayment commitments obtained prior to the pandemic. Again, it is important to gauge your finances in order for you to manage it properly.

Any default in the repayments may affect your creditworthiness and could hinder your future prospects of securing a loan with the banks. Do not take this lightly as it may impair your ability to obtain your required financing in the future.

Too complicated? Speak to your bank

Getting the right help with your bank is not complicated at all, but you do need to discuss it with your banks to work out an option that is best suited for you based on your current circumstances. These are challenging times, and the banking industry is prepared to assist where needed.

Repayment assistance is available to eligible Malaysians who are affected by the COVID-19 pandemic, and it is a simple and straightforward process. Some 98% of all repayment assistance applications have been approved thus far – a testament to the industry’s commitment to lend a helping hand.

The banks will provide customers with options in terms of repayment assistance, such as reduced monthly installments spread over a longer tenure, or an extension of three months of the loan moratorium if the customer was retrenched in 2020 due to the pandemic. Moreover, any repayment assistance taken during this period will also not affect your credit health, as they will not be recorded in CCRIS. Once you have sorted out your repayment options with your banks, it is vital to maintain prompt payment according to the new repayment schedule in order to maintain your creditworthiness and also work towards lessening your debts.

Stay positive and take charge

It is easy to feel stressed or despair during times like these – nobody could have predicted such a profound economic impact, after all. But it’s important to remember that we’re not alone in this, and it’s crucial to make decisive actions to take charge of our financial situation.

Of course, not everyone may be comfortable to try out the strategies shared above. It can be intimidating, and we might even make mistakes. If you feel this way, you should speak to your bank as soon as you can.

-- BERNAMA

Mohd Kauthar Rozmal is the Editor-in-Chief of The Outlook Asia, a digital portal that features financial news, insights, and analysis relevant to the Malay community. He has expertise in topics around finance and investment.