BENEFITS OF DEBT CONSOLIDATION WITH OVERDRAFT

BENEFITS OF DEBT CONSOLIDATION WITH OVERDRAFT | According to Bank Negara Malaysia in 2015, Malasia is one of the countries with high debts, with household debt coming up to a total of RM1,010.8 billion. Malaysians are borrowing a larger amount of money to fund their expensive lifestyles that get more and more costly each year as the result of increasing living cost. As a result, Malaysians’ purchasing power has greatly decreased over the past decades.

The factors that contribute to the household debt is mainly residential properties, personal financing, followed by vehicle loan, and non residential properties. There is a hike in property value according to the annual property price increment by state in 2015. You could use a Malaysia’s loan calculator as well to help you determine the monthly repayment on a loan if you are planning to apply for one.

With increasing household debt, consumer spending is naturally affected. This will then lead to a restriction of economic growth in the country. However, this does not stop Malaysian from borrowing money. As we cannot stop people from borrowing, we can always advice on ways to pay off the debt with minimum interest. This article will guide you on the benefits of debt consolidation with overdraft.

1. Home equity

Home equity can be determined by loan to value (LTV) ratio of the property and the ratio of lender’s requirement, for example, financial institution.

Price of property	RM450,000
Increment of property value annually	6.20%
Property value in the 7 th year	RM685,621
Total mortgage debt in the 7 th year	RM414,082
LTV value	80%
Available equity	RM134,414

Based on the table above, if the bank offers you a bank loan for the home equity, there will be a total of RM134,414 as overdraft at the agreed interest rate when you loan with your bank.

2. Use the positive equity

Make full use of your positive equity. Use the home equity wisely. The overdraft from your home loan lets you borrow against equity of the property at a agreed interest rate along with a set of  repayment that has the terms and coditions set earlier by your bank.

Use your home equity on things that reduce the costs and bring your returns over the long haul. For example, you could consolidate the debts that you have in order to save on interest, such as credit cards, particularly if it involes costly credit facilities.

If you have a number of debts that you would consider consolidating into a much cheaper loan, you can always consider getting a home loan overdraft facility. A home loan overdraft facility will allow you to consolidate a number of balances into one credit facility at a lower interest rate. Hence, your borrowing costs will be reduced dramatically with a longer tenure for you to settle your loans. You can also opt to pay only the interest amount on your overdraft to allow yourself a looser finance.

The benefits of debt consolidation with overdraft will allow you to have the access to cash. With lower repayment monthly, you will then have more cash in your hands. Paying off your debts can be a stressful thing you encounter in life but it is still doable if you stick to paying the minimum payment every month. You could also pay off your debts faster by shortening your repayment period by opting for home loan overdraft policy to shorten the repayment period. Hence, your credit health will be improved.

One of the best things on consolidating the debts when you use a home loan overdraft cacility is the flexibility to be able to adjust the repayment, not forgeting the amount of interest that you manage to save. This will come to a good use especially during those months when your finance is tight. You could always reduce the repayment amount by stretching the period of your repayment duration. However, do note that you are not able to do this if you are consolidating the debts of term loan, such as your personal loan as consolidating your debts of personal loan will incure harsh fees for late or missing payments and it will also affect the credit rating.

In addition, it is also convenience as it is way easier to manage all your debts because you will only need to make one single payment on one due date to one bank. At the same time, you will be able to have lower interest for all the debts you have.

In conclusion, using your positive home equity to pay your debts is a good way to regain control of the finances. Not only you can pay lesser for your debts, you can also have a faster and shorter repayment. This will then reduces your debt to service ratio and improve your credit health. However, this does not mean you can make late payment. Being a late payer for your payment might get you into bigger trouble in the future.