10 Best Ways to Pay Off Bad Debt Quickly
hutang lapuk

10 Best Ways to Pay Off Bad Debt Quickly

(This article was first published on the 9th of August 2017 and updated on the 18th of October 2021)

A debt-free life is one that is desired by many, but the big question is how do we achieve that? How does one pay off all their mounting debts on time and prevent them from turning into bad debts? A bad debt is debt that is left outstanding over an extended time period, and it can also be described as monthly commitment that does not add real benefits into one’s life. In this article, we will be sharing on strategies to pay off bad debts, debt repaying techniques such as the ‘snowball’ technique, overlap loan and several others. But before we delve into them further, let us first understand what good debts are versus bad debts.

What are Good and Bad Debt?

Good Debt

A good debt is one that serves as a form of investment that can bring long term benefits to the debtor, for instance mortgages, business and student loans. A mortgage is essential in becoming a homeowner, whereas a business loan might be necessary for generating more income in return. Similarly, taking student loans is very common across the world as more and more people strive to invest in themselves through higher education.

On the other hand, taking up loans to purchase vehicles can be useful as they can increase an individual’s mobility and productivity. This, however, is provided that the vehicles purchased are not exceeding their affordability, otherwise it will be counterproductive and only acts as a financial strain.

Besides that, a good debt is usually in the form of personal loans with low interest rates. As long as the needs mentioned above can be fulfilled, be it for education or for owning a home, be sure to opt for creditors that can offer you the lowest interest such as these bank and koperasi personal loan.  

bad debt
Image Source: Freepik

Bad Debt

On the contrary, bad debts are those that do not bring apparent long term benefits and might only serve as financial burdens.

The rapid rise in electronic goods, trendy smartphones and gadgets, branded apparel and cosmetics, to name a few, have contributed to increased spending on vanity. It does not stop there; some would even pay for pricey cosmetic procedures for the sake of their appearances and fund them using credit card or personal loans. While these are essentially personal choices, it should be reiterated that maxing out on credit cards for these purposes, or any purpose at all, will only lead to exorbitant bills. If you are encountered with emergencies and need quick funds, you can opt for licensed moneylenders (formally known as community credit) offering loan tenures of below 2 years. With a disciplined repayment behaviour, you can be offered a more affordable interest rate and be safe from late penalties. Be sure to only opt for safe and certified credit community lenders.

Always remember to distinguish between your necessities and desires at any point in time. This will save you from making impulse purchases that might end up damaging your future and even close to be declared as bankruptcy. Regardless of the actual source of debt that you own, being in a position of feeling ‘bogged down’ by debts might in itself indicate that those are indeed bad debts.

Strategies to Pay Off Bad Debts

1. Allocate a budget

The most fundamental way to get out of debt is by managing your basic finances. You can create an Excel spreadsheet or choose from a wide range of mobile applications to track your savings and expenses. Be honest and meticulous about where you have spent your money on so that you can judge for yourself if there are areas of spending that can be improved on. Of course, it takes commitment to follow a stringent budget, but it will save you from much trouble.

2. Check your outstanding balance and interest rates

ways to pay off bad debts
Source: AKPK

1. Website/Mobile Application/Hotline

You can browse the official sites or applications of the financial institutions that you are dealing with to get complete information on your loans, such as outstanding balances and interest rates.

2. Professional assistance

You can seek assistance from Agensi Kaunseling dan Pengurusan Kredit (AKPK) which is available all across the country.

This Bank Negara Malaysia (BNM)-certified agency offers free advice and consultation for debtors, debt management programs as well as general financial literacy education, especially for those that are in need of some intervention with their financial management.

3. Make comparisons

Before taking up any loan, compare beforehand which bank can offer you the most reasonable interest rates.

4. Consult your bank

Most banks are open to renegotiating their clients’ loan terms. The best way forward is by communicating your issues and come to a mutual agreement with your lenders on a new repayment plan.

3. Create a timeline and choose your preferred debt repayment technique

When borrowing, it is helpful to create a timeline of how long you aim to take in settling your debts. For instance, you can aim to pay off your PTPTN loans within a year. This can help you stay on track with the repayments as well as your overall finances. Especially if you own a number of debts, there are a few techniques that can be adopted to pay them off systematically.

Technique 1: Snowball

This technique focuses on completely paying off one debt account at a time, while only minimum payments are made for the rest. The core of this technique is to focus on the debt of the smallest amount and then gradually move to the next smallest ones.

paying off bad debts
Source: Freepik

Step-by-step guide to the Snowball Technique

  1. List down all your debts in an ascending order, from the smallest to the largest amount.
  1. Next, list down each of their corresponding interest rates and monthly instalments. You can check for accurate information by contacting your banks or financial institutions.
  1. Each of the debt also has a payment deadline every month. To ensure that you do not get penalised for late monthly payments, write down all of the payment deadlines for your debts to avoid late payment interest charges as this indirectly contributes to your debt increasing.
  1. Following this list, select the debt with the lowest value when both the monthly instalments and interests are taken into account. For example, your lowest-valued debt might be the one with the lowest monthly instalment. You should now focus on completely paying off this one. Say if your lowest-valued debt is a credit card debt amounting to RM100 monthly instalments, try to mark it up a little to RM150 so that it can be settled quicker. 
  1. At the same time, you still need to pay at least the minimum instalments of your other commitments.
  1. After you have successfully settled the smallest debt (in this case a credit card), choose the second debt on your list. As an example, take a personal loan with a monthly instalment of RM300.
  1. Continue to set aside RM150 as you previously did for your credit card debt, except now it is added to the RM300 instalment of the personal loan. Therefore, each month you will now be paying a total of RM450 (RM300 + RM150) to settle the personal loan.
  1. Repeat this strategy for all of the debts on your list.

Advantages & disadvantages of using the Snowball technique

This technique is good for boosting motivation to pay off debts by starting small and then increasing gradually.

However, this technique will add the total amount of time taken to settle all of your debts. This is because the minimum repayment that is made for the other commitments will cause an accumulation of interest on them and will lengthen their repayment time.

Technique 2: Avalanche

ways to pay off bad debts
Source: Undebt.it

This technique is similar to the Snowball technique, except this one requires you to first sort your debts in a descending order, particularly from the one with the highest interest charged to the least, or from the most important commitment to the least. Paying off the commitment with the highest interest first can help you save on overall interest payments in the long run.

The most important aspect of this is for you to sort your commitments in order of priority, from rent or mortgage repayment, vehicle loans, utilities, personal loans, daily necessities, and then other cash expenses. This way, you can then set aside other expenses that you have more flexibility in choosing, such as gym memberships, pet food, and online streaming subscriptions, to name a few.

Simply put, as opposed to the Snowball technique that is focused on the smallest balance, Avalanche is focused on the debt with the highest interest rate first.

Step-by-step guide to the Avalanche Technique
  1. List down all your existing debt in a descending order, starting from the one with the highest interest rate.

To illustrate, say you have these debts:

Credit CardPersonal Loan *estimated 2 yearsCar Loan *estimated 7 yearsPTPTN *estimated 6 years
Outstanding BalanceRM3,000RM5,000RM45,000RM30,000
Interest Rate (yearly)18%8%3.51%1.5%
Monthly InstallmentRM150 (1st month)RM241RM667RM435.96

2. The debt with the highest interest rate following this example is credit card debt, with an 18% interest rate. According to this Avalanche technique, you should pay off this debt first.

3. The schedule above shows an overall debt totalling to RM1,493.96. To pay off the credit card debt quicker, you should use all the remaining balance to pay off the debt.

4. The same calculation method as the Snowball technique is adopted. E.g., you usually allocate RM1,600 per month for all your debt commitments. The balance from this allocation is RM106.04 (RM1,600 – RM1,493.96) and it is used to supplement the repayment of the debt with the highest interest (in this case the credit card). At the same time, you should make minimum repayments for the other debt accounts.  

5. After you completely pay that off, you should move on to the commitment with the second highest interest, specifically the personal loan. The repayment amount should now be RM256.04 (RM150.00 carried forward from the previous credit card debt + RM106.04). Repeat the same method for all the subsequent debts.

Advantages & Disadvantages of the Avalanche Technique

The benefit of this technique is that you can save on overall interest payments as the highest interest debts get paid off first.

In some cases, there are debts that are of the highest amount among all your debts and is also charged the highest interest. It will take you about 2-3 years to pay that off. This is where a psychological battle may take place. Ask yourself, will you be able to stick to the Avalanche technique for that long? In a nutshell, this technique requires a high self-discipline and commitment.

Technique 3: Snowflake

Snowflake technique to settle debt
Source: My Modern Met

Advantages & Disadvantages of the Snowflake Technique

You will not be burdened with a high financial commitment, as you only need to pay a little at a time with a small sum of money.

You can settle this debt without realising if you finance it by getting a side job or by doing freelance work.

This technique, however, can take up a long time and the timeline of when the debt can be settled might appear a little vague. Therefore, it takes careful planning if you choose to pay off debt with this technique.

You need to be updated on the debt balance to avoid hidden charges or accrued interest. This is also to ensure that you will be able to estimate the time taken to settle all your debts.

The 3 techniques outlined above all carry their own pros and cons, but they all point out to the same outcome: PAYING OFF DEBTS

To add to them, these are 2 additional techniques to pay off debt quicker and simultaneously cut down on your monthly commitments with lower monthly instalments.

Technique 4: Debt Consolidation

Debt consolidation is a method where all your debts are conjoined into a new personal loan. The creditor will consolidate all of your debts into a single new personal loan account, with an interest rate that is lower than the average of all the interest on your existing debts separately.

To simplify, you will be using the money from the new personal loan to settle your existing debts. You also can get an early settlement for car loan if you manage to consolidate your total loan. Debt consolidation can be done at any financial institution that offers the service.

Step-by-step guide to pay off debt with Debt Consolidation

  1. Take due diligence on yourself (list down all your debts)
  2. Find a better interest rate
  3. Identify processing costs, fees & hidden charges

Advantages of Debt Consolidation

  1. Focus on paying one instalment only
  2. Help to lessen your monthly commitment

Disadvantages of Debt Consolidation

  1. Longer repayment period with lower interest rate
  2. Chances of application being rejected
  3. Will not eliminate debt

Technique 5: Debt Overlap

Overlap conjoins all your existing debts into a single new personal loan account with the same financial institution. This technique will offer a new financing with a lower interest or a longer loan term as compared to the existing loan.

Overlap is only offered by the same financial institution. As an example, you have a personal loan and credit card (active loan) at Bank X. You can apply for Overlapping Facilities only in the same bank.

personal loan overlap
Source: Freepik

Step-by-step guide to pay off debt with the Overlap technique

1. Overlap with a lower rate

2. Overlap with a longer loan term

3. Overlap with salary deduction exceeding 60% (for civil servants)

Advantages & Disadvantages of Debt Overlap 

You can lower your monthly commitment and also accept ‘cash in hand’ without taking up a new debt. However, this does not mean that your overall debt amount is reduced. Overlapping with a personal loan can be adopted to cut commitments, but the debt amount remains, and it might not be effective if the borrower is not disciplined in repaying their debts.

Which is the best technique for you?

You know yourself best, so choose the technique that best suits your style and affordability. All 5 of the techniques mentioned above bear their own benefits and drawbacks, some require great discipline and commitment to pay off debt faster, while some are more flexible. Make your own assessments, ask for expert advice if you need, and trust your own judgements.

4. Make use of credit card benefits

ways to pay off debt
Source: Today Online

If you have one or more than one of this ‘plastic money’, you can actually do more with it than buying things on credit. Depending on the type of credit card that you own, some cards will allow you to do a ‘balance transfer’, which is to transfer your funds at an interest rate of 0%. Make use of this feature as it can help you save some money.

For instance, say you have a credit card balance of RM15,000 at an annual interest rate of 18%. Within a year you can save up to RM2,700 through balance transfer. If you have an amount of debt that you are certain can be settled within a few months, check with your bank to do a balance transfer with a low fee (if not for free) to speed up your dept repayment process.

5. Cut down on unnecessary spending

ways to pay off debt
Source: Freepik (@Odua)

The best way to stop piling on to your debt is by stop spending! Of course this does not mean absolutely cutting down your spending, but start by weighing up your expenses. For instance, perhaps instead of using a paid music streaming service, you can opt to streaming for free from YouTube instead.

When buying something, ask yourself if it is better to buy now, or buy later in say, 6 months from now. It is best for you to think every time before spending to be on top of your finances.

6. Use bonus incomes to pay off debt

ways to pay off debt
Source: Malay Mail

The first thing that may spring to mind when receiving a bonus is probably rewarding yourself. Before you jump to getting a decadent treat for yourself, think first if the ‘treat’ is truly a necessity, or if it is simply a desire. You can opt to simpler rewards, such as a budget holiday trip or having a fancy family dinner. It is more practical to use the extra cash on paying off debt first, as it is very important in securing your financial position now to prevent trouble at a later, unpredictable time.

7. Get a second job for side income

ways to pay off debt
Image Source: Freepik

Getting a side hustle can be a quick way to repay your debts. If you can afford it, mentally and physically, use the time outside work for side jobs such as freelancing, especially for those with writing and graphic design expertise, where you can work from home at your own time. Start adding on to your portfolio by utilising platforms like UpworkFiverrFreelancer, etc.

You can also try to make money out of your hobby. If you love cooking, you can try selling your delicacies online.

8. Resell the unwanted items in your home

ways to pay off debt
Source: Time Out

If there are items in your house that are unused and still in good condition, such as old gifts, accessories and furnitures, you can try reselling them on online marketplaces. Platforms like CarousellMudah.my or Lelong are some of the trusted online marketplaces in Malaysia. This is a quick and easy way to earn some cash while also decluttering your home.

9. Reward yourself at the end of the journey!

ways to pay off debt
Source: Freepik

Paying off debts can seem like a long, endless journey if you see it as a punishment for your lifestyle. This is why it is always important to not splurge in the moment and instead, make wise judgments before spending your money. We understand that sometimes debts are inevitable, but with careful planning and a motivation booster, paying off debt truly can feel less burdening. We do not encourage overspending after paying off a debt, but we encourage some moderate celebration. After all, you have managed to be disciplined over a long time!

10. Do not put off repaying debts

ways to pay off bad debts
Source: Experian

It is human to forget, and that includes forgetting to repay our debts on time. We have prepared 5 simple tips to help you stay on top your debt repayments and make sure you are reminded to pay on time.

1. E-mail reminders

Websites like Boomerang for Gmail or FollowUpThen.com can provide you with monthly e-mail reminders that can be set a few days before those debts are due.

2. Phone reminders

Use this simple feature to set monthly instalment repayment reminders on your phone, just be sure to set the correct dates.

3. Mobile applications

Some of the applications we suggest for using as your reminders are Remember The Milk (Android & iOS) and Google Allo (Android).

4. Pay first thing

This might be the easiest way to be reminded. As soon as you earn your monthly pay, set aside an amount equating to your debt instalments. Pay off the crucial ones first, and then set aside some savings and the rest can be used for daily expenses and self rewards.

5. Sticky notes

Do this analogue method by writing down your instalment due dates and their respective amounts, and then stick them up on places where you frequently go to. This can be your fridge, work desk or computer.

Seeing those notes every day will certainly reduce your chances of forgetting those due dates.


Your debts are not going to pay themselves, that is the cold truth. As Dave Ramsey put it, “There are no shortcuts when it comes to getting out of debt.” It might seem challenging at first, but momentum is key. As long as you start and stay committed, it will come to you naturally eventually. No matter how difficult things may feel, always refrain from borrowing from unlicensed lenders, or ‘Ah Long’.

Borrowing from ‘Ah Long’ can truly damage your livelihoods. If you have tried the methods listed above and are still in need, do not hesitate to get advice from AKPK. This is a government-trusted body that can offer you free consultation and can help you through their debt management program.

This article is prepared by Direct Lending. Our smart eligibility checking system is able to suggest the best personal loan from Bank and Cooperatives for you. We will aid in helping you to find, make comparison and apply for personal loan that is cheap and most suitable for you to overlap your old loans and lower your monthly commitment.Our service is 100% free, no upfront charges or processing fee. 

Share on facebook
Share on whatsapp
Share on telegram
Share on email
Share on twitter

Subscribe Newsletter

* indicates required


Download our comprehensive budgeting planner for FREE!

Monthly Budgeting


1 x Budgeting Tracker

1 x Savings Planner

What's Included :

1 x Money Checklist