For most Malaysians, debit may be inevitable but advising your clients to manage their finances and arrears effectively, they can move forward towards achieving financial freedom.
Debt is something that many Malaysian cannot avoid whether taking a loan for buying a house, for tertiary education or for buying a car etc. Nevertheless, accumulative debt when left unmanaged could wreak havoc on one’s journey to financial freedom. For instance, it is imperative that your clients consistently make their mortgage payments as failure to do so can lead to losing their home to the bank, as well as being blacklisted for future loans. Now they don’t want that to happen, do they?
To find out if your clients are knee-deep in debt, you can advise them to use the following ratio that compares their monthly income to their fixed housing loan/car loan/credit card repayment.
Basically a safe ratio level of debt is about 35% of one’s income, with 25% comprising one’s housing loan. Anything higher than that is a sign that they may need to reevaluate their finances.
To stay on top of their finances and debt, here are some tips that investors may find useful:
1. Borrow only as much as you can afford to pay
If they need to take loan, borrow only to the extent that they can afford to pay with their current level of income. Calculate additional costs, e.g, if they are planning to buy a car, add in the costs of petrol, maintenance, toll etc.
2. Don’t’ buy what you don’t need
Ask your clients to think it through before impulsively making a purchase. The rule of thumb is don’t buy something that you cannot afford.
To stay out of debt’s way, having a proper savings plan will help keep your clients on track of their expenditures. Also consider an emergency fund to pay for their living expenses should they be faced with a financial emergency. Always look for ways to maximize their income, as they may never know when a rainy day will come.
3. Compare loans to get the lowest interest rate
Always advise clients to compare the different packages offered by financial institutions. Choose the one with the lowest interest rate that computes the balance on a daily basis and also comes with the option for early refinancing. This will reduce the overall interest paid and shorten the loan tenure.