Living lavish lifestyles pushed people into debt


Article from the New Straits Times dated 4 July 2013


KUALA LUMPUR: Su Cheng, who earns about RM2,000 a month, had four credit cards to support her lavish lifestyle.


Without realising it, she began to fall into the credit card debt trap as she withdrew cash advances from one card to cover the minimum payment of

another card.


Her financial situation worsened when she hit the maximum credit limit, and most of her income went to making the repayments.


Another couple, who wanted to be known only as Salim and Adriana, thought they could afford to have a lavish lifestyle as their combined income was more than RM10,000 a month. However, things got tougher when Adriana had to quit her job to take care of their children.


Nearly 80 per cent of their income had to go to paying off their credit card debt.


Alex, a young marketing executive who bought a house and signed on as the co-borrower for the housing loan, suddenly faced a major hurdle when his father, who was the primary financial provider, was diagnosed with a critical illness.


This caused an additional financial burden on Alex. He decided to make up for his financial short-fall by getting credit cards and personal loans. Soon, he defaulted on his monthly housing payments and faced legal action.


These young people were among the 222,942 individuals who sought help from the Credit Counselling and Debt Management Agency (AKPK) service until the end of May.


They sought financial advice on how to get their personal financial situation back on track.


AKPK's records show that 23 per cent seeking counselling cited poor financial planning as the main reason for them ending up in debt and defaulting on their loans.


AKPK head of corporate communications Mohamad Khalil Jamaldin said the agency provided counselling on financial management, including tips on using financial budgeting to manage expenses. AKPK assisted financially distressed consumers regain financial control.


Khalil advised the public to use AKPK's web application or banking calculators to make their monthly budgeting easier.


Debtors can also join AKPK's Debt Management Programme, which guides them in settling their debts in line with their income. Until the end of May, 90,807 applicants had joined the programme.


Insolvency Department head of corporate communications Shamsiah Chee Ros said people were declared bankrupt mainly because they maintained a lavish lifestyle and had poor financial planning. Another factor was the improper use of credit cards. "To maintain their lavish lifestyle, they often fail to differentiate between their wants and needs," Shamsiah said.


She said that failure to make repayments on credit card purchases accounted for 4.18 per cent of of bankruptcy cases, while debts due to hire purchase loans accounted for 25.79 per cent.


According to Bank Negara statistics, up till March, the highest amount of loans given was for residential properties (RM312.8 billion) and the second highest (RM144.1 billion) was for the purchase of cars.