CREDIT CARD DEBT AND YOU: Under-30s under siege

THOSE under-30 are the leading age group for people declared bankrupt due to credit card debt. This startling finding reveals the other dimension to the general problem of credit card debt which has now reached RM23.3 billion.

“Out of the 3,548 people declaring bankruptcy by credit card, 1,774 belong to those aged 30 and below,” said Datuk Abdul Karim Abdul Jalil, director-general of the Department of Insolvency Malaysia. That works out to a staggering 50 per cent.

There are a number of reasons for the phenomenon but no serious study of the matter has yet been conducted , said Abdul Karim.

He added that applying for a credit card is easier these days. There are instances where you do not need to submit your pay slip to apply for one.

With credit cards easily obtained, it’s important that the right people should be the ones who are eligible for them. These cards should be made applicable to those who have the capability to pay.

Besides that, the public should also be educated on how to better manage credit finances so as not to end up in debt, Abdul Karim said.

“We’ve already witnessed what the credit crunch has done to a country as powerful as America. We should take precautions to make sure the same thing does not happen to Malaysia.

“It is often said that money is the root of evil, but now, we can also easily say that enjoying the luxury of credit is the root of bankruptcy.”

RM24b not small money

IS RM24.4 billion big money? This is the amount of credit card debt owed by Malaysians, according to Bank Negara Malaysia’s statistics as at end of March 2009, reported by Bernama last week.

The report, however, stated that the credit card debt in the country has not yet reached a critical level, according to the Credit Counselling and Debt Management Agency (AKPK). This is because up to that period, loans via credit card accounted for only 6.1 per cent of the total financing by banking institutions.

However, Malay Mail took a closer look at how much RM24.4 billion is worth by looking at the country’s 2009 budget allocation, and we find that RM24.4 billion is certainly worth “something”.

The budget allocation for 2009 stood at RM207.9 billion. Out of this amount, RM7.6 billion was allocated for transport, RM3.2 billion for public utilities, RM17.8 billion for social services (including education and health), RM7.3 billion for pensions and gratuities, RM4.1 billion for security, RM33.8 billion on subsidies, RM 27.7 billion on economic services and RM13.5 billion for debt service charges.

So, in comparison, it is quite evident that the RM24.4 billion is not an insignificant amount.

Problems clearing debt?

AGAINST the backdrop of job losses and falling disposable income, those who have debts are expected to face severe problems repaying their loans and settling their debts.

As such, it is not surprising that the number of clients coming forward to seek help in debt restructuring has been on the rise since October 2008.

The best general advice for people facing debt problems is to seek advice from banks and government bodies namely Agensi Kaunseling dan Pengurusan Kredit (AKPK) who will assist to work out the loans for them to suit their capabilities.

According to AKPK, a wholly owned unit of the central bank, the cumulative number of people seeking debt counselling and help as at end-March stood at 82,441 nationwide. On a quarterly basis, there is a 35% increase in the number of people applying for AKPK’s financial services.

However, AKPK CEO Mohamed Akwal Sultan cautions against reading too much into these figures.

“Certainly debt counselling has more relevance when things are not going well, but this is still a new agency and part of the growth we see is from our awareness campaign which includes talks, briefings, articles as well as exhibitions.

“Also, there is maybe the word-of-mouth from the people we have helped who tell their friends,” he says, adding that this could partly explain the rise in number of people who have approached the agency for counselling.

Credit card problems is an issue for most (70.5%) of the people who seek help from AKPK, says Mohamed Akwal.

“It is only natural that there is credit card debt. When things go bad, you will not want to miss the car payment because you don’t want them to repossess it, you will also try to keep paying the mortgage because you want to have a place to stay. So, people usually delay paying and prioritise other loan payments.”

He also cautions against the habit of simply paying the minimum payment on the credit card while using the credit card to settle other needs. “It’s a very bad way to survive”.

The one message the agency wants to send to the public is that people should try to go for help to their bank or AKPK earlier.

“Normally, when people start to miss payments, they try to avoid the bank but you should actually go to the bank or come to AKPK and discuss your problems as soon as possible,” he advises.

What is the general advice for people with debt problems?

“Well first we look at the person’s overall situation. Then there are two things they can do – reduce their monthly expenses (cut corners) or total debt amount and/or look at increasing income by taking a second job,” he says.

There are only two ways out of it – tighten the belt and cut back spending or raise income level by taking a second job.

But that’s easier said than done. He points out that in considering to take up a second job, one must pick something that is physically possible and sufficient sleep and time with family are important.

As for those who have been retrenched, Mohamed Akwal says the main thing is to be careful on how to spend retrenchment benefits.

According to the Human Resource Ministry, almost all those who are retrenched at present should be able to find work if they are not choosy as there are enough jobs.

He suggests people take on part time work or even start a business if they are inclined, AKPK is able to put people in touch with microfinance agencies if they are interested.

But it is completely up to the agencies whether to finance the business idea, he points out.

Latest Ministry of Human Resource numbers show that a total of 33,361 people have been retrenched in the country from Oct 1, 2008 to May 7, 2009.

Another 42,884 people have been temporary laid-off or have received a pay-cut in the same period.

AKPK expects higher debt problem cases

Kuala Lumpur: Credit Counselling and Debt Management Agency (AKPK), an agency set up by Bank Negara, expects a surge in the number of financially-distressed individuals seeking counselling and debt management services this year.

Chief Executive Officer Mohamed Akwal Sultan said more people might not be able to meet their financial commitments in view of the current economic downturn.

There could be more lay-offs and shorter working hours, rendering people in a tight spot for money.

"Last year, the number of counselling services increased to 41,447 from 25,320 in 2007," he told Bernama.

"AKPK also handled 11,958 cases involving debt management programmes in 2008, an increase from 7,614 cases in 2007," Mohamed Akwal said, adding that he expected more cases on credit cards and housing loans.

The Association of Banks in Malaysia (ABM) recently lowered interest rates for credit cards by between 0.5 percent and 1.5 percent for Tier-1, Tier-11 and Tier-111 credit cardholders.

Late payment fees will be slashed to a minimum of RM5 and a maximum of RM75 effective March 31.

However, many parties viewed the interest rate cut as not good enough.

Mohamed Akwal said the reduction would only benefit the 40 percent who currently elect to leverage on the credit made available under the credit cards.

It may also encourage this group to make more regular minimum payments to move from Tier-III to Tier-I to enjoy the lower interest rate.

He said credit cards should be used as an electronic means of payment mechanism and not a source of long-term credit.

Interest rates for credit cards will normally be higher than other secured loans as the risk is higher.

However, interest rates on credit cards in Malaysia are still one of the world's lowest.

"Though the non-performing loans in Malaysia are not as bad as in the United States, it is crucial for the people to live within their means and only buy things they can afford," he said.

AKPK's counselling services are available to all individuals who need help to manage their personal debts with financial service providers regulated by Bank Negara.

However, there is a qualifying criteria for AKPK's assistance, he said.

An individual has to have an income after meeting his or her expenses, total debt does not exceed RM2 million, not under advanced litigation process and is not a bankrupt.

For financially-distressed individuals, who met the qualifying criteria, AKPK will offer a debt management programme (DMP) to restructure their loans or extend repayment period and flexibility in loan repayment amount to suite their cash flow.

"As long as the DMP applicant abides by the terms and conditions, banks will not take legal action," he said.

According to the profile of individuals who have enrolled into AKPK's DMP, Mohamed Akwal said it was the Malaysian men who were the most debt-ridden.

"In a household, it is usually the man who is the main breadwinner and manages the household. As such, they are the ones who normally take loans," he said.

Mohamed Akwal said AKPK's counselling and DMP are available at all its eight branches in Penang, Perak, Melaka, Johor, Pahang, Terengganu, Sabah and Sarawak.

Two new branches in Kota Baharu and Alor Setar will be opened this year, he added. - Bernama