I Need Money, Help!!!

Have you ever helped a friend or a relative by lending your money to them to solve their financial problems especially related debt? If yes, you may want to continue to read on because I don't think you're helping them. You're probably making their financial condition even worst and eventually ruin their life!


Why Lending Money Does Not Work?

The obvious answer is it doesn't solve the root cause of the problem which is due to "lack of  financial planning knowledge".  If this is not solved, no matter how you help that person, they always come back to you with a same problem again and again. What you really want is "teach him/her how to solve their own problem!" so that they're independent enough to solve their financial problems next time. This solution is forever and will last. :)

So, don't straight away lend your money first...


Explore Alternatives Instead

Although it seems like lending your money is the only solution and it is often not the case. The first thing that what you need to do is guide them ask themselves this question - "if no one is going to help you, what else can you do"? Explore the alternatives together with them.  Here are some I can think of:

• List down all expenses and see which one can be cut down. Insurance is the tricky one because often being understood as necessity which is not true especially when one fails to pay their own debts. Let it go although it is a lost (due to insurance is not mature yet) and start thinking to switch them to term-life insurance if really need to be insured. Know more about term-life insurance, visit here. I talked about it at very high level. :)

• Start looking at their assets and see which one are not necessary. If the debt interest is 15%, can the assets generate 15% of return? If no, then it is probably time to let go of these assets. Sell them and use the money to pay the debts to reduce the principal. Some time you need to force them to sell. :) Assets are those include houses, properties, real estates, cars and investments (e.g. unit trust and stocks).

• Get a spreadsheet to work out a monthly cash flow. Make sure it is not deficit, your expenses cannot be more than your income. If yes, you need to redo the above 2 steps. Find a way to make it surplus (i.e. income more than expenses). Put 10% of your income for saving and the rest is the remaing amount (after deduct all your expenses) that  you can use to pay your monthly debt installment, let's say RM 1K. 

• Finally, look for AKPK (specific to Malaysia only) to reduce debt interest. The good thing about AKPK is it stops them from accumulating more debts immediately. I documented down the whole AKPK application process here for your reference. Use this RM 1K as your negotiation with the counselor on amount of money that they can pay in order get an optimum reduced interest rate.

You Still Can Lend Them Money

Ultimately, you shouldn't lend your money if possible but sometime no choice. :)

You still can lend them money only after a proper financial planning has been done on how and when the debt can be settled. In other words, a sustainable plan needs to be came out first. Your money should be a minimum amount money that able to help them have surplus cash flow starting from now for example. Don't lend them more than that.

For the money that you lend to them, I would suggest you charge them interest rather than giving them zero interest and ask them to come out a proposal on how they can pay you back. Your money should be included as one of their debts in their financial planning.  From this exercise, you can assess how much they know about financial planning.

If it is negative, the problem is not solved yet. You need to pay more effort. It is not easy to get everyone understand financial planning. Good luck!

AKPK's DMP Application Walk-through Experience

This post is for people who plan to apply for AKPK's DMP application. I just shared my experienced that I have gone through.

Last month, I went to Bank Negara in Penang to help my father in law for the DMP - Debt Management Program application under AKPK. I think it maybe a good idea for me to capture the entire process here. You may find it useful you plan to apply it.

Firstly, go to the AKPK website under the "Contact Us", decide which location that you want to go. After that, go to the DMP application process section and search for the toll free (i.e. 1800-85-2575). Call them and ask them when is the public briefing section. In Penang, the public briefing section is on Tuesday and Friday, start at 10 am if I remember correctly.


Summary of this Briefing

I try to remember as many as I can...

You must go to this briefing section. I personally think this briefing is extremely good. It tells you basic of personal finance!

• It explains in general why people fail to manage their money. What trick the banks try to convince you to buy their product? What is cash advance? What is their interest and the impact in your personal finance if you're in debt? Yes, it includes compound interest and the rest of the basic personal finance stuff.

• Next, it explains the impact or the standard procedure the bank will take if you fail to pay the minimum amount (i.e. 5%) of your credit card. At the beginning, they will give you warning (both verbal and written) for 2 to 3 months and if you still fail to pay, they will start kicking of the official legal process.

The legal process consists of following:

• Writ of Seizure and Sale (WSS)/Penghukuman Writ Penyitaan & Penjualan - The bank will get approval from the judge to allow them to sell all your assets to cover all the debts that you have. If it is still fail to pay off the debts, the next process kicks in.

• Judgment Debtor Summons (JDS)/Saman Penghutang - This will allow them to walk-in to your house and inspect whatever valuable assets that you have and to take it when necessary. According to the instructor on that the day, the purpose is not really to seize your assets but more on make you embarrassed to your neighbor.

• Bankruptcy Action/Tindakan kebankrapan - This is the last step if above 2 steps fail. You may want to contact AKPK as soon as possible to avoid this step but bankruptcy could be one of the options as well if you really can't pay the debt. AKPK will give you advice on whether bankruptcy is a right choice.

• At last, it explains the steps what you need to do for the AKPK's DMP application. The details as follows in summary...

After the briefing, you will need to schedule an appointment with a counselor. According to the instructor, it is not easy to schedule an appointment due to limited counselors. He encouraged us to call the toll free number non-stop until you get the appointment. Before the appointment, you need to make sure all the documentation is ready. There will be a form and a checklist of documentations that you need to prepare:

• CCRIS Report from Bank Negara Malaysia - it can be printed in any branches of Bank Negara I think. It is a machine and you just need to put in your I/C to print this report. Very powerful machine, because it can really print out all your debts including your car and housing loans as well.

• Latest credit card statements - bring all of them.

• Latest pay slip or anything that can prove your monthly earning if you're not employee.

• Photocopy of your I/C at both side

Since I didn't want to wait for another day, I cut queue by negotiating with the counselor directly.Luckily, I managed to slot in. But you can only do this when you have all the documentations ready. So, I settled this within a same day! :)

During the counseling, the counselor basically does not really give you counselling. They seem like just follow the standard process or protocol. What the counselor will do is make assessment on the proposal that they plan to negotiate with bank. I think usually is 9% of interest for 10 years. Then, he will just calculate whether it is feasible based on your current income. I think if you really need lower interest rate (e.g. < 9%), you will need to plan out your negotiation.

After that, he will give you and DMP reference ID for you to apply online. There is a PC there where you can login to the DMP website (he will give you the instructions). Basically, you just need to fill up all the information as stated in your hard copy application form. The only extra thing is the last page where you need to explain why you fail to manage your debt. You can put in bullet form so it is clearer.

The last step is bank in your first payment through Maybank within several days. Don't worry, the counselor will give you the instruction as well. You can pay through ATM machine or online banking. Finally, you just need to wait for the approval letter from AKPK in 2 weeks. Once it is approved, you make the monthly payment to AKPK.

Few notes:

• AKPK is a negotiator and they don't refinance your debt but more on helping you to negotiate with bank to get lower interest rate. If you want, you can negotiate yourself with bank too for lower interest without going through AKPK theoretically.

• If you fail to make payment to AKPK, they will blacklist you and not to help you anymore. So it is important if you unable to make the payment, you must inform them and negotiate with them again.

Good luck in your APKP's DMP application!