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.