4 Tips for Those Struggling Financially
Azizi lost his job as a pilot during the COVID-19 pandemic when the airline industry busted up. It was the first time since he graduated 9 years ago. He was completely fearful and thinking how to survive in the competitive job market while taking care of his 5 month old son as a single dad.
Making mortgage payments really adds to the stress during this difficult time. Azizi is always known as a good paymaster as he always maintains good payment discipline on his car loan, credit card loan and mortgage loan. But due to limited financial resources, he needs to utilize his instalment budget for rainy days.
If he allows his loan accounts to go delinquent, that accounts will negatively affect his payment history and the longer it’s delinquent, the worse that impact will be. He understands that he needs to re-establish his credit history. Ignoring or pushing the problem away will just cause more issues in the long run.
If you face the same financial issues with Azizi, here are 4 actions you can take that could help keep you financially sound.
1. Draw up your short term budget plan
Due to limited financial resources, you may need to set spending limits and rules, such as only purchasing essentials for the moment. Try to prioritize your budget and keep as much cash as you can by starting selling your non-essential items and purchase on discount.
2. Make all payments on time
If you’re struggling to pay your bills, don’t simply skip payments as doing so will affect your credit score. Contact your bank before missing a payment to see if they can help.
As a credit card borrower, Azizi may approach the bank to get information on tiered interest rate structure and late payment charges on any outstanding balance for new and existing credit cards.
As a solution, Azizi may consider paying at least the minimum payment amount promptly (before the Payment Due Date stated in the Statement of Account) to enjoy Preferred Tier Rate offered by the bank and not be charged Late Payment Fees.
Another option for Azizi is to convert his credit card outstanding balances into a term loan depending on requirements set by the bank.
3. Get help if you’re struggling with financial issues
It is worth exploring the relief measures that your bank is offering and asking them for guidance in order to know what first steps you should take as liquidity matters most during times of economic uncertainty.
The moratorium means that borrowers will be able to delay the payment of loans including mortgages and hire purchases for a grace period of six months.
The deferred loan repayment applies to all active loans without outstanding amounts exceeding 90 days. However, the moratorium period does not apply to credit card balances.
Payments deferred under the moratorium will not affect borrower credit score or borrower ability to borrow loan at a later stage. Deferred payments will not be reflected as defaulted payments.
So for the six-month moratorium period offered, Azizi has the opportunity to save an extra sum of cash in hand for his mortgage and car loan. Depending on the bank's requirement, if Azizi requires more than 6 month’s indulgence, he may consider to Restructure or Reschedule his loans.
Restructuring loan is when the parties have agreed to alter the loan terms, usually to make them more favourable to the borrower. This is common for the borrower who can no longer afford to pay under the old terms for some reason like unemployment, having a current job with less income or forcing a tighter budget.
In Azizi’s case, he may restructure his loans to receive a lower interest rate or monthly instalment. Here, Azizi will go to start on a clean slate by terminating 1st security agreements and entering into new security agreements.
This is another option for Azizi if he wishes to extend tenure of facility at lower monthly instalment rate as the bank has extended the loan repayment period.
The contract is applied as supplementary agreement and the existing security documents not terminated and obligation is continuing and security is not discharged in rescheduling.
4. Be proactive and face your challenges.
If you think the bank doesn’t help much, seek professional advice or financial counselling on how to manage your debts. You can contact an organisation such as AKPK (Agensi Kaunseling dan Pengurusan Kredit), which offers free financial and debt management counselling.
8 July 2020 | by HomeCrowd team