THE bottom 40 group can have credit cards but must exercise caution as its challenging if their spending exceeds their income and they have problems repaying their debts, a government agency said.

This advice came from the Credit Counselling and Debt Management Agency (AKPK) general manager Nor Fazleen Zakaria who told The Malaysian Insight that close to 90% of its portfolio of debt restructuring are unsecured debts comprising personal loans and credit cards.

Nor Fazleen said it can be challenging for those in the B40 group to manage credit card payments.

The B40 group are those with a median household income below RM3,000, according to the Household Income and Basic Amenity Survey 2019 research findings.

“That is our concern as well. What we have been discussing is about having an income and managing expenditure, don’t borrow too much, having sufficient for insurance and others, that is the outflow part.

“The inflow part (income) for the lower-income group is a challenge because you can’t manoeuvre so much.”

About 34% of the participants in the debt management programme earn an annual income of below RM24,000.

Those earning between RM24,000 and RM36,000 accounted for 20.8%.

Nor Fazleen admits that it is challenging to increase income but easier to reduce expenditure.

Asked if there has been instances of cardholders using one credit card to service the debt of another, she said it is a common scenario which AKPK frequently comes across.

“That is not going to resolve the problem.”

For those owning multiple credit cards, she said, the best solution is to pay off the card with the lowest debt first before managing the bigger amounts.  

This, she said, will instil a sense of discipline and motivation to settle the remaining debts.

Poor decision-making, for instance using credit cards to fund travel trips while not being able to service the payment could also lead to cardholders falling into the debt trap.

“You have to understand that when you are using (the card), you are actually borrowing,” she said.

It’s also important for cardholders to be aware of compound interest payments and how expensive it is to service the debt, she said.  

For example, the total interest for a rate of 17.5% per annum for an outstanding amount of RM10,000 will be RM3,897 whereby a borrower ends up paying RM13,897 for RM10,000.

AKPK computes that it will take about 7.3 years to service the debt if a borrower keeps paying at the minimum payment of 5%.

“Owning a credit card is fine but using it must be with knowledge,” she added.

Cardholders should also ask questions if they don’t understand the details about their financial products they bought.

On the issue of multiple credit cards issued to those from the lower-income group, the Association of Banks said there are guidelines and policies in place requiring the principal cardholder to earn a minimum of RM36,000 per annum to qualify for a credit card from a maximum of two issuers.

“Principal cardholders with a minimum income of RM36,000 per annum or less can only hold credit cards from a maximum of two banks. 

“Our member banks adhere to these policies and guidelines,” the association’s executive director, Kalpana Sambasivamurthy, told The Malaysian Insight.

Kalpana said applications are assessed stringently in accordance with a bank’s internal approving guidelines and procedures which are in line with responsible financing policies.

Basic eligibility aspects include income levels and repayment capabilities.

“In accordance to the Personal Data Protection Act 2010, information on bank customers are deemed confidential and our member banks view the protection of these information very seriously,” she said when asked if there is a database which allows banks to be informed if a person already holds a credit card with another bank.

On the number of defaulters among the B40 group, Kalpana said the association doesn’t collate such information.

Cardholders are advised to contact banks if they face difficulties repaying their credit card debts, she said.

Those having difficulty servicing their debt should also seek AKPK’s assistance as the agency will be able to provide aid via financial counselling and restructuring repayments through its debt management plan, Kalpana said.

Since 2007 until end of July 2019, AKPK has received more than 957,000 applications for counselling and 285,000 for debt management.

About 23,000 cases with a collective outstanding amount of RM971.3 million have been successfully managed under the programme.

AKPK was established in 2006, as part of Bank Negara Malaysia’s financial sector master plan (2000-2010). – August 25, 2019.