Smart Investor Malaysia


Debt Management: Bad Debt vs Good Debt


A middle-aged executive named John finished work, drove home, and the very first thing that he saw was an envelope that contains the latest credit card statement. It states:

Outstanding Balance: RM 36,867.44.

He was overwhelmed and pondered, “How on earth am I going to clear off my credit card debt? It’s way too much, and I don’t have much cash in my bank account to do so. I’m so screwed.”

If this sounds like you, fret not – let this article be a helpful guide on how to move forward.

1. What’s a Bad Debt?

First, not all debts are bad. There are two types of debt: Good Debt and Bad Debt.

Good debt is debt that makes you richer. For instance, property investors are experts in using debt as their leverage to expand their property portfolio and thus, have become wealthier as their properties’ value continue to appreciate over time.

Bad debt is debt that makes you poorer. For instance, many borrow money to buy things where their value drops over time, thus, resulting in the person becoming poorer. These debts include credit card debt and personal loans, where the interest costs are substantially higher than collateralized obligations like a mortgage.

2. Discover the Root Cause

debt root problem

For some, such is life. For many people, their debts may stem from medical bills, a failure in business, a pay cut, or job loss. If this is you, just know this: It’s temporary and you may proceed to Point #3 to work on a solution.

In most cases, having excessive bad debt is more than just a financial issue – it can be a psychological issue. I believe there is a deeper cause that might be the main culprit to your financial problems. For example, let’s say now you don’t have much money. Why do you:

  • Buy stuff that you do not need?
  • Attend expensive social gatherings?
  • Go on a holiday trip overseas?

3. Work with a Partner


If you are young and single, you may consult your parents for some financial advice. In many cases, you might even receive some financial grace which is much needed as a temporary relief to your problems.

But, with that said, you might lose a valuable chance to improve your financial intelligence as you’ve been bailed out. But, if you opine: “I still want to solve the issue like a man”, then your next best option is to find a friend whom you trust and is more financially-savvy than you to impart some financial wisdom to you.

If you are in a relationship, it’s ideal for you to work on these financial issues as a team. It’s helpful, but not easy, to be transparent about it and to find the solutions together. One thing is for sure: Both of you will come out stronger and more refined as a couple after you have cleared your bad debts.

4. Go on the Offensive

If you have little financial resources to work with, you may set a small goal to raise another RM500 a month which is dedicated to clear off your bad debt.

It may be hard initially. But, if you have learnt how to raise RM500 a month to clear bad debts, very soon, you’ll also know how to raise even more which could be used for your investments.

Here, I’ll share a guideline that enables you to take baby steps towards your freedom from debt. Firstly, you can split the RM500 a month into two categories:

  • Earn RM250 a month
  • Cut RM250 a month in expenses.

Secondly, here’s a list that you can do to:

Make RM250 a month

  • Do Overtime
  • Make more sales if you’re a salesman.
  • Take up one or two freelancing jobs.
  • Sign up as a Grabcar driver.
  • Have a part-time job.
  • Give tuition classes to school kids.
  • Sell your unwanted stuff on eBay or
  • Refer customers to your business friends for a commission.
  • Join MLM, sell insurance, but please … don’t join money games.

Save RM250 a month

  • Track your expenses. You’ll find items to cut on very quickly.
  • Say ‘No’ to expensive social gatherings.
  • Say ‘No’ to smoking, alcohol, nightclubs and KTVs.
  • Say ‘No’ to gambling.
  • Cut entertainment expenses.
  • Cancel expensive gym memberships. Run in the park or do Tabata at home.
  • Cancel Low-Yielding Unit Trust Investments.
  • Cancel endowment plans with Low Sum Assured.
  • Exercise delayed gratification.
  • Quit drinking Starbucks or reduce four RM15 drinks a month.

5. A Word on Balance Transfers

debt credit card balance transfer

Being aware of the latest promotion of Balance Transfers is helpful. Having said that, it’s essential for you to check the following before agreeing to do a balance transfer on your credit card debt:

  • Is it on an Effective Rate or Flat Rate?
  • Is it calculated based on an Annual Rate?
  • What are the clauses for Early Repayment?
  • How much is your monthly repayment after doing balance transfer?

If you are not sure whether a Balance Transfer is to your advantage, you may consult a trustworthy friend first before proceeding with it.

About the Author

This article is co-written by KC Lau and Ian Tai.

Ian Tai is a Dividend Investor. Financial Content Machine. Producer of 200+ Articles, Weekly Host and Presenter at Co-Founded, an online educational membership site that empowers retail investors to build a stock portfolio that pays rising dividends in Malaysia and Singapore. 

KCLau is a financial educator, having published seven books including the current bestseller Money Smart, and co-created a dozen online financial courses. He gives away his popular Money Tips e-book volumes free at his website:

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