How to go from negative RM5k/mth to buying 2 properties using this Debt strategy?

“How would you feel when you are in this situation of…..”

❗Total RM 382,000 𝗼𝘄𝗶𝗻𝗴𝘀 in credit card & personal loan

❗Have a 𝗱𝗲𝗳𝗶𝗰𝗶𝘁 of RM 5,328/mth of which RM 13,500/mth is into servicing debt installments

❗𝗡𝗲𝗴𝗮𝘁𝗶𝘃𝗲 networth due to faster growth of loan interest than his assets growth

To feeling confident & free like this……

• ✔️𝗥𝗲𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲 his personal loan & Credit card outstanding to only RM 131,000 from RM 382,000 

• ✔️𝗦𝗮𝘃𝗶𝗻𝗴𝘀 of RM 7,851/mth by restructuring his commitments from RM 13,500/mth to RM 5,649/mth

• ✔️𝗜𝗺𝗽𝗿𝗼𝘃𝗲 his wealth to RM 565,000 after we help him restructure his debts, giving him 𝗰𝗼𝗻𝗳𝗶𝗱𝗲𝗻𝗰𝗲 to buy 2 properties worth almost RM 1 Mil

“Raymond is someone ambitious, friendly & has very good networks”

So this is what happened to Raymond (not his real name), who is an IT professional, working for a famous Multinational company. Single & available, he is very friendly & has a very good relation with his friends & colleagues. 

Not settling for mediocre, he always has a dream of doing his own business. That is how he started partnering with a long time friend into the chicken rearing business. His friend was a veterinarian and chicken is a staple food in Malaysia. So he put in his share of RM 225,000 investment from his side while his friend put in RM 75,000 to purchase live stocks & stock feeds. The condition was his friend will run & manage the operations of the company.

“Raymond starts a new venture with a friend. But business couldn’t stay afloat due to subpar sales“

But within 6 months, the business couldn’t garner enough sales, struggle to stay afloat & accumulated a debt of RM 120,000. So when Raymond was introduced to me by a friend, to resolve his situation, things weren’t as easy as it seems.

His concerns were, he went from having good cash flow & savings to having a deficit of RM 5,328/mth from using his credit cards to finance the losses of the business.

“Do you know how to pick ‘GOOD’ assets?”

When we deep dive further into his situation, despite earning good income and being able to save, his problem compounded because over the years, he did not pick ‘GOOD’ assets. Literally, his assets were not growing as fast as his loans were. We discovered that he placed a big amount of his savings into 21 insurance policies, to be exact. 

So while most individuals are right about having a mix of high risk investment vs low risk investment, Raymond was right on the big picture but struggled to see that insurance does not form part of his investments.

“2 things we did to help Raymond. Of course, you need to diagnose the root cause first”

So here is 2 things we did to help Raymond

1. Restructure his debt of RM 382,000 which is causing him to have a negative cash flow of RM 5,328/mth by using Debt Replacement
2. Restructure his insurance by understanding his PMR rate to eliminate low coverage & high premium and moving the savings of RM 23k/year into investments with a target return of 8% a year

DEBT REPLACEMENT

Raymond’s personal loan & credit card were having high interest rates of 16-26% with very short repayments (2-3 years). This is the main reason why many suffering debt problems have a big installment payment and suffer from deficit cash flow. So we set out to find any Personal Loans that were 10 years long and had an interest ranging from 4-6% a year.

Fortunately, we saw 1 bank which is able to offer a 4.7% interest while giving out a 7 year loan. Got Raymond to immediately apply for the loan as it will save him 12-22% interest per year. And subsequently because of his good records, he was able to secure the loan & reduce his installments from RM 13,500/mth to RM 5,649/mth.

“Do you know the difference between paying your credit cards on time Vs Paying Off fully your credit cards on time?”

You may ask how is it possible for someone who has a deficit of RM 5,000+ per month still have good repayment records in his credit reporting (CCRIS). Do you know there is a difference between paying your credit cards on time VS paying off fully your credit cards on time?

1. Paying your credit cards on time – which means you are paying minimum amount on time, to avoid your credit report to show you delay on making your repayments. It is a good practise which allows you to borrow more loan but over time it is not a good practise as the loans will grow till a point your Debt Service Ratio will burst & you would not be able to qualify for any loans.

2. Paying your credit cards fully on time – which means you are paying fully on the amount you have used every month, leaving no outstanding balance for the banks to charge you interest on. This is by far the best way to manage your expenditure on your credit card as 

3. Not paying at all the minimum repayment – Of course, this is the least favorable as your credit report will not allow you to borrow any loans because of bad payment history. Compared to option 1, this is harder to help. 

Are you in a similar situation? Join us & learn in our upcoming (now renamed to Debt-Free Code workshop)

*DISCLAIMER – All strategies listed here are not a recommendation nor advise. The article is written purely for the purpose of education and journaling only. The content of this article is an expression of my opinion and should not be taken as professional advise. If you are seeking for professional advise, please consult me personally . You should do your own research and/or seek expert’s advice when overcoming your debt circumstances.