No car loan, credit card debt or house mortgage? Is such a life possible for a Malaysian?
Yes, it is very possible. I live debt free and I credit it to being one of the major reasons why I went through the pandemic years of 2020 and 2021 without dipping into my savings … despite not having a full-time job for almost half of 2020!
But being debt free is not my natural inclination. In fact, I was quite a spendthrift. In my 20s, I struggled with debt and ended up, at one time, having RM10K in credit card debts. That, on top of the car and house loan! All in all, by the time I was 25, I already had almost RM140,000 of debt to pay off!
This despite growing up with frugal parents who taught me the value of saving money and to be careful with credit cards.
At one point I asked my mother for a loan because I ran out of money. She frowned and told me sternly: “I will not give you money to pay off your debt. You will have to do it yourself!”
When I told her that I was barely making ends meet because of my tiny salary, she said: “If you don’t learn how to pay this off yourself, you’ll never learn.”
She was right. Although my salary was indeed a miniscule RM2000 before taxes, and I was paying off a car and house loan, I did not live frugally. I spent hundreds on books, luxuries and trips. I ate out every day. Left with no easy way out, I was forced me to find a way out of my financial mess.
Here were the steps I took to pay off all my debts and get debt free:
1. Start learning
The first thing I did was to read as much as I can about finances. I was lucky to have stumbled on Dave Ramsey’s podcast, and then get his book, Total Money Makeover. From there I devoured classics such as The Latte Factor and The Richest Man in Babylon. I also read personal finance blogs and gained motivation, tips and tricks, and ideas to accelerate my debt repayment process.
2. Get clarity on the state of your finances
You can’t fix what you don’t know. Set aside a day to list down all your debts. It’s a scary process, but knowing exactly what you need to get rid off will help you focus.
3. Save up an emergency fund
You are probably thinking that you can save after you get debt free. But what I discovered was if you don’t have at least a month of living expenses saved up, you may end up using your credit card more just to pay for emergencies. You may end up accumulating more debt. Have money set aside for a crisis (or God forbid, crises).
4. Choose a method to pay off your debt
There are a few methods you can use to pay off your debts:
Debt snowball: Focus on eliminating the smallest debt on the list you made in Step 2. While you continue paying the minimum on your other debts, try to roll more money into the smallest debt until it is completely paid off. Once it is gone, “snowball” the amount that you had used on the smallest debt + minimum payment for the next debt. Work hard to eliminate that second smallest debt … and so on until you pay off all your debts. If you know you need the motivation to stay on the journey, this is a great way to do it, even if it isn’t as mathematically efficient.
Debt avalanche method: Focus on eliminating the debt with the highest interest first while paying the minimum for the rest. This method is great for those who prefer to save money on interests.
5. Have a schedule to pay off debt. Automate
Know when your payments are due to avoid paying late fees. With technology today, you can automate these payments. In fact, I strongly encourage you to do so.
6. Keep a tight rein on your expenses. Find a budgeting method that works for you
One of my favourite Youtubers, Budget Girl, regularly details how she earned and spent every dollar in a detailed, colour-coded spreadsheet. I’m not that girl.
After years of trying to be like Budget Girl, I gave up and now use a simple, no-tracking budgeting system where I spend only a certain amount each day. As long as I spend within that limit, say RM50 each day, I’m fine. If I overspend, I’ll spend less the next day.
However, if you get motivated by tracking every ringgit, go wild! Use an Excel sheet or an app to track your expenses to ensure you don’t go over budget. Share it with the world — believe it or not, the personal finance world love these things.
Alternatively, use the “envelope system” where you literally stuff a certain amount of cash into an envelope each month. If you’re uncomfortable with keeping that much cash at home, use a digital system like goodbudget.com instead.
7. Earn more money
I know you’re probably staring daggers at me now. Liz, you want me to get more when money when I barely have enough to pay off my debts?
Besides getting a new job that will pay you more (easier said than done, of course), you can start small by selling stuff you no longer need. You can also start a small side business as extra income. You can walk pets, deliver goods or do some freelance writing. Don’t poo-pooh small earnings. “This will not be enough” is a defeatist mindset to avoid. Have an open mind — your side hustles could surprise you.
8. Embrace a simple, smaller life
Being a minimalist changed my mindset to a point that the lure of stuff accumulation, trend chasing and other perils of consumerism no longer trip me up. And this new mindset is a big reason why I am no longer a shopaholic. Living frugally may sound like deprivation, but it can also be very satisfying and comforting. I find a lot of joy in repurposing old things, cooking my own food (I bake my own bread now!) and living in small digs. I explain how in the video below:
9. Be careful of using debt to pay off debt
Some people take on loans to pay off all the loans … consolidating your debts into one debt may seem like a good idea, but be aware that some personal loans have very high interest rates. And goodness, don’t turn to loan sharks if you can’t get a personal loan! Personally, I prefer that you pay off debt with money that you’ve earned, not with credit. You are trying to get out of the habit of getting into debt, after all.
A note about balance transfers
One method that I’d cautiously okay, however, is to use a balance transfer plan. This is where you transfer a credit card debt to another credit card. This plan gives you the option to pay off the debt at a lower interest rate. You can consolidate several credit cards onto that one card.
However, read the fine print: Be sure you can make the repayment schedule or you may end up paying for expensive penalties.
10. Join a community of “losers”
When I started paying off my debt, I shared my journey through my blog (old blog). My readers cheered me on, and that really motivated me to succeed because they were my accountability buddies and I didn’t want to disappoint them. There’s a vibrant community of debt losers on the Internet. Join one and share what you’ve learned. Not only will you benefit from this, you will be encouraging someone out there to stay on track with their debt free journey.
I really thank my Tiger parenting approach to teaching me about finances.
It’s funny and actually a little touching, that my parents now treat me like I have a million ringgit in my bank account (I assure you, I don’t). These days instead of lecturing me on spending too much, Mum actually begs me to buy more clothes. “Really, Lin, why are you wearing that awful shirt, can’t you buy a new one?”
Dad now has the habit of telling me, “You can afford it what, so what are you worried about?”
In 2020 and 2021, my family really came together as one to make sure that we as a family was sheltered from financial storms, but Mum and Dad were mostly perplexed by my angst about money. “It’s not that you don’t have any money! You saved money lah!”
Trust me, I certainly did not get this treatment in my 20s!
The debt repayment journey is not easy. But, trust me, it’s worth it. The most important you can do for yourself is to start.
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Elizabeth Tai 