Same time last year, I was invited by KCLau to share on his platform “KCLau.com: Free Your Monthly Cash Flow through the Power of Debt Consolidation”. That is how I met Isabela, a working mom from a multinational bank in Malaysia. Having to manage 20 staff in the office and 7 kids at home, it was like working 2 jobs at the same time.

She was so busy, she did not have time to manage her own finances. Thankfully since she is a senior manager in a Bank, that means her pay is quite senior too. Unfortunately & fortunately she had to get in contact with me as she’s been troubled by debt problems. What troubled Isabela was the No 1 blind spot in Credit Card that many of us do not know. Especially when you are someone who pays your credit card monthly on time and every time.

So how is it possible if one pays their credit card on time they will still be in debt? She constantly asks this same question over and over – “Why is it that I pay my credit card every month on time but my outstanding debt seems to be getting bigger and bigger?” If you felt the same way before, you need to know how we unravel this blind spot many have missed. And this is the main reason for causing Isabela to be short of RM 5,000 every month. How would you feel if you are short of RM 5,000 every month? Ouch right?

This is what we found out when we sat down with Isabela to understand the severity of her issue. You will notice the main problem was the Loan Repayment which was contributing significantly to her shortage of RM 5,000+ per month (Refer to the diagram above). Can you imagine paying RM 11,000 + per month on your loan repayment? Can you now understand why most people in debt don’t like to face up on their current s**t?

We then dig further as we were curious how it was possible for someone to be paying on time every month on her credit card but the outstanding amount balloon bigger and bigger? This is what we saw. There were 4 credit cards with multiple instalment plans. (Refer to the diagram below). Not too many. I have seen worse, like 10 – 20 cards. For Isabela, some of the cards were tied to recurring payment plans. Nothing out of the ordinary. But they all had 1 thing in common. All the cards had outstanding balances.

I started to organize them to understand how much was she paying every month for each of the cards. This is how it looks (Refer to the diagram below). This was where we found the root cause. I realized she was paying a fixed amount for some of the cards. I knew she was in trouble. As her income couldn’t support all the cards repayment. She was paying on gut feel. Meaning she would pay an average of RM 3,000 per card for 3 of the 4 cards.

Neither was she paying down her balance on the total expenditure for that particular month nor was it covering the whole instalment. For example, you could see in the diagram above, she only pays RM 3,000 for her CIMB Credit Card. However, the monthly instalment came up to RM 2,130 and she was spending RM 3,071 for that particular month. Meaning the payment was short of RM 2,000+ and as a result, she owed her credit card more than before she started that month.

This is a very bad habit and 1 of the MAJOR blind spots for credit card users. Let me explain why

First of all, I corrected her by saying that although you pay your cards on time, every time. However, you still need to pay in full the amount spent for that month or else the outstanding will grow out of proportion. You cannot just pay on time without paying in full what you needed to pay.

Secondly, when most people miss the 1st month of their credit card balance (having an outstanding balance), it would not be easy to reconcile what you spent the subsequent months. Hence, when you don’t know what you spend, then you won’t know how much to pay. And this will go on like a vicious cycle.

Thirdly, most people like me who constantly zerorize our credit card outstanding every month will never know about this problem. So when I met many individuals like this coming into my class, it was an eye-opener. It means potentially many more are in a similar situation.

So how do we solve this?

Once we knew what was the contributing problem, we could get to work. In Isabela’s case, we needed to do 2 things

1. Restructure her debt and consolidate it into 1 unifying loan.
2. Manage her expenses through ICE JAR, the world’s Simplest Money Management System. (I wrote about this in detail here. In case you want to refer, click HERE)

Although she has a housing loan which we can use to consolidate her credit card debts (which is what I have shared with you in the past – How we help James save RM 10,000 per month), there wasn’t much capital appreciation as she bought her properties quite recently.

So we had to use another method, we call it Debt Replacement. This is to replace the higher interest credit card debts with a lower interest loan, if possible, a loan that has lower interest and longer repayment terms. The most ideal will be a ‘reducing balance loan’ instead of a fixed-line loan. (I shared an earlier post HERE)

Within a month, we managed to help Isabela reduce her loan repayment from RM 11,648 to just RM 2,594 monthly. This relief was so great, she couldn’t stop thanking me. Can you imagine suddenly having a big break from not having to pay RM 9,000+ every month? You would be sleeping soundly at night too, right?

So how did we find a loan that is not a housing loan, which is reducing balance in nature? Is there such a thing as a ‘reducing balance’ personal loan? Interestingly, did you know we already have a ‘reducing balance’ car loan? Comment below if you know or ask me so I can share it with you.

*DISCLAIMER – All strategies listed here are not a recommendation nor advice. 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 advice. If you are seeking professional advice, please consult me personally. You should do your own research and/or seek an expert’s advice when overcoming your debt circumstances.