10 Steps To Reduce Your Monthly Debt Commitment
debt commitment

10 Steps To Reduce Your Monthly Debt Commitment

A critical component of personal finance is avoiding debt build up. It is worth noting the current trend in bankruptcy cases in Malaysia, where one of the major causes of bankruptcy has been attributed to personal loans. Another potential cause for financial liabilities to grow in alarming proportions is the unrestrained use of credit cards. 

If you are a responsible borrower, debt repayment is of paramount importance, which should be treated with careful planning and urgency. There has to be a conscious effort to weigh up your ability to repay every time a credit expense is made, and a clear strategy to tackle your repayments monthly should also be made. Another plus point is to have a target to be financially free, with a careful plan to be taken to achieve this.

Take Immediate Action

If you notice that the amount of debt you have is starting to pile up and beginning to feel like a burden, it is good to immediately take action to tackle them before it gets too late. 

Of course, your debt will not simply go away. Some might choose to engage the services of professional counsellors or the ‘debt-relief’ experts. However, this might entail additional costs that might be unnecessary, especially when free debt management resources are increasingly available.

The best way to contain the situation is to fix your financial dilemma step-by-step. With some smart planning and determined approach, your monthly debt commitment can be reduced, which will in turn take some burden off your mind. 

How to Reduce your Monthly Debt Commitment?

The hardest part of any debt reduction goal is knowing where to start. It is imperative to set a timeline for clearing off your debt that is manageable by yourself, while at the same time is effective in preventing worse financial repercussions to you (e.g. prolonging loan tenure that will cause you to pay more interest). If you are firm on resolving the matter, follow these steps that can help you to bring down your outstanding balances to manageable levels.

1. Assess Financial Obligations

A good starting point is to accurately and honestly evaluate your current debt situation, i.e., perform due diligence on yourself. When you know the exact amount, type of debt, payment schedules, as well as your own financial habits, it would help you to plan out better.

List down all of your debt with their respective repayment amount, interest rates and payment schedules. Next, take a look at your own monthly income and how much you can allocate monthly to strategically repay your debt, without badly compromising your allocation for necessities. This is important as you will need to decide on your preferred method in settling all of your debts. Choose what is best for your own financial situation. After all, the most important part is determination and consistency.

2. Align Budget with Debt Commitment

After you have assessed your financial obligations, review your monthly budget. Do some financial exercise and list down all of your regular and recurring expenses. Do not leave out any expense that would have a material effect on your monthly budget.

Once you have deducted all of the expenses, the leftover cash will be the amount you can afford to pay your monthly debt commitments. You can increase your disposable income by revisiting your expense list.

Look for the non-essentials like internet subscriptions or spending that can be cut down. Reduce your monthly spending on these items in order to increase your disposable income available for other more important causes, such as food and household expenses. It will put you in a better financial position as you begin a determined effort to improve your debt situation.

3. Craft a Debt Reduction Plan

When everything is arranged, you can craft a workable debt reduction plan. Earmark your available monthly cash on hand for those debts that hurt the most. It means you prioritise paying the loan with the highest interest rate and highest outstanding balance.

The plan will be a continuing cycle every month. Your objective is to significantly reduce the debt balance, if not fully liquidate them. Repeat the process of ranking the debts according to the highest rate and outstanding balance.

If the greater part of your debt is credit card payables, securing a personal loan that charges lower rates can be a strategy in your debt reduction plan. This option can lessen interest expense and further reduce your debt balance.

As you are implementing the debt reduction plan, you are also tempering your spending. In particular, you need to put a stop on your credit card usage. Accumulating more charges will only set you back and wreck your debt reduction strategy.

4. Negotiate with your Creditors

Another approach is to negotiate with your creditors. Instead of turning your back and evading their collection follow ups, face up to them. Negotiating with the banks or credit card companies is not a sign of surrender. Informing them of your predicament reflects your willingness to pay.

There is more to gain in case your creditors agree to a reduced settlement or debt restructuring scheme. A payment extension might be granted too. Also, if there is a window to move your credit card debt to a new one with lower interest rates, do it.

As mentioned earlier, obtaining a low interest rate personal loan through debt consolidation can be a solution to pay off your debts. Many who have taken this option have been able to ‘reset’ their financial positions and reduce their monthly debt commitments.  Consult with a personal loan provider to find out how they can help to lighten your financial cargo.

5. Execute your Debt Plan Diligently

The success of your debt reduction plan rides on your shoulders. Choosing to take action to reverse a perhaps poor financial habit is already commendable, and if you manage to stick to it, it is something you should really be proud of.

As such, executing your plan consistently without fail, is a surefire way to achieve your financial goal. Start implementing your debt plan little by little and you will eventually see its effect on your own wellbeing.

6. Lower Your Lifestyle Standard

Every cent counts when you are in short of money. Because you cannot predict when that will happen, you have to lower your lifestyle standard, at the same time you have to sacrifice or restrain yourself from the luxury that you are used to. 

Now is the time to be more careful on your spending by lowering your expenses on unecessary things to increase your extra money fo the necessary items only. You can also stick to this habit eventhought the financial crisis has passed as you are already used to the new saving money lifestyle. 

When you lower your lifestyle, your expenses will also lowered. You budget planning should  reflect the real expenses and cash flow. The money or you in-flow that you keep can come from salary, savings, commisions and investement. 

The out- flow of your money can be from debt commitment, rent, groceries, commute and more. As soon as you start budgeting, you have to be more disciplined and follow the plan accordingly and be more aware of your spending in order to make sure that the plan works.

You can also try to list down your budgeting in more details by using 50/30/20 rule. To help you better plan your finance, you can also try using money apps that is available online. 

7. Look For Side-Income

Malaysian tend to have more than one job, with current economy, taking up a side job is more beneficial. These people mostly join gig economy works as their side income to support themselves better.

Other than online jobs, there are also lots of opportunity in other sectors that requires manpower. For example, delivery services are high in demand in todays world. Some people has taken the opportunity to fulfill this demand of manpower as a part-timer for logistics company and food delivery services. It is a new career opening for others to try. 

8. Utilize Goverments Financial Aids

Malaysian households do receive financial aid in the form of cash like Pakej Ransangan Ekonomi Rakyat (PRIHATIN) and Pelan Jana Semula Ekonomi Negara (PENJANA). The amount given depends on the individual income. 

Previous economic crisis does not require extra financial aids or wage subsidy. The impact of COVID-19 has never been experienced before. If you are a receiver of temporary for individual, makke sure that you utalize the help as best as you can like including it into your budget. You does not have to use your saving money for emergency for this crisis. If you have enough money, use it to payy of at least half of your debt commitment.  that have a high interest  or car loan. If you have side job, you can use the salary to help you settle your car loan faster.

9. Know your ‘Wants and Needs’

Look back on your budget list that you made. Identify which one is actually a want and a need. The way to downsize your expenses is by cutting off some expenses by only buying what you need and cutting off or restrain yourself on the wants.

For instance, if you like buying snacks or subscribing to a magazine, those are wants that you need to cut off. 

As a solution, you can unsubscribe the magazine purchase and start getting news online. As for snacks, you can replace them with fruits that you have at your house. 

10. Set Up An Emergency Fund

We will never know when emergency situation will occur. Therefore, you have to make sure you have enough emergency fund as it is very important. Financial experts recommended the amount of your emergency fund should be 3-6 months from your commitment. 

Mistakes In Monthly Commitment Management That Needs To Be Avoided


1. Fail in budgeting or ineffective budget planning

 Eventhough there are many that tries so hard to save money for bad days, unfortunately every month without avail they keep on using up their salary. By budget planning, we will get to identify where the money are wasted so that we can make a better judgement for our future spending.

According to rule 80/20, 20% of your salary should be invested while 80% is for daily needs like food, utility bills and repayment for your debt commitment. Disaster like losing job can happen at any moment without us expecting it coming, hence the emergency fund, amounting of 6 months of income in your saving accounts or fixed deposit can be used as an emergency fund. 

If your high daily expenses is the obstacle that is keeping you from saving up 20% from your income, it is about time for you to fix your bad financial habit of going out for shoppings and going to the cinema or any activities that requires you to pay. 

2. Budgeting For Yourself Only

If you are married, have a discussion with your partner about your financial planning eventhough it is easier but your partner’s opinion is also as important as yours once you are married . Working spouses can reach financial goal together by budget planning together and talking about your financial goals and priority like paying off debt commitment.

If you are still a bachelor, you are still a part of a family. your aging parents shall be informed of all your decisions that might affect their living conditions like changing career, especially if they are financially dependant to you.

3. Unable to pay back loan

What is the main factor of bankcruptcy in Malaysia? According to Malaysia Department of Insolvency (Mdl), 27% from the bankcruptcy cases from year 2012 to 2016 is caused by the failure to payback hire-purchase loan, 23% is because of personal loan while 19% is from mortgage loan.

As guidance, do not let the pay back amount be more than 30% from your income. Eventhough some bank are willing to offer loan that is 70% – 80% from your income, it does not mean that you can afford to pay back the monthly debt commitment.

4. Does not take into account your financial liability

People who are civil servants are deemed as having a stable job often become a guarantor for theri relatives and friends that wanted to apply for loan. You are suggested not to become a guarantor for anyone if you are not familiar or does not know their financial status in details including their monthly income, suspended payments, monthly payment and the amount of their debt commitment.

Eventhough Bankruptcy Amendment Act 2017 offers protection to social guarantor that does not receive any benefits from the loan, as a guarantor, you are still responsible to pay back the loan if the borrower failded to do so. This is the financial liability that we mean.

5. Ignoring insurance protection

Like tehe idiom, ‘gird one’s loins’. One of the main thing that can help you prepare best is getting a life insurance.  The goverments are targeting about 75% of  Malaysian are to have life insurance by 2020. Today, almost half of Malaysian residents does not own life insurance.

Without insurance, death and disabilities can make your family become poor. Not only because of the cost of insurance that is high with the aging age, as well as the risk without life insurance. Hence, do not dilly dally in the matter of taking up life insurance policy.

6. Unpreparedness for old age

The biggest financial mistakes that are widely done by Malaysian is the failure to plan for retirement. We always assume that retirement still a long way to go. Statistic made by KWSP on 215 shows that 2 over 3 Malaysian have less than RM50,000 in their KWSP accounts. 

This sum usually can only last you for 5 years.  Hence you need to venture other alternative investment like personal retirement scheme  that offers you tax exemption of RM3,000 per year until 2021, also educate yourself on government bonds  that you can find like Amanah Saham. 


For best, just be financially prepared for financial emergency or crisis so that you will have a peace of mind when the crisis does hit. A debt commitment problem can be very taxing on the mind, but it does not mean that you have to deal with it on your own.

There is nothing that you shoud be ashamed of if you reach out for financial aid at this moment of crisis but just make sure that you do so at licensed and trusted moneylender.

As we mentioned, you can speak to your credit provider to renegotiate your loans (they are also willing to speak to you!), or you can also seek free professional advice. With trust and discipline, you can pull off your personally crafted debt reduction plan. Once you have succeeded, learn from the past and aspire to commit to more disciplined financial habits. Remember, a debt-free situation is far better than being debt-ridden.

If you have decided to use a personal loan to pay off your credit card debt or other loan commitments, but you don’t know which personal loan best fits you; check us out!

This article is written by Direct Lending –  An online personal lending platform that provides bank and koperasi personal loan as well as licensed moneylenders personal loan. For car owner, check out our car repair instalment plan- Service Car Now, Pay Later. We can help you find, compare and apply personal loan that best suits your financial needs. Check your eligibility for free, no upfront payment or processing fees and get a loan rates from 2.31% p.a. or 2 working days.

(This article was originally published on the 27th of February 2018 and updated on the 13th of October 2022). 

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