What is Debt Settlement in Malaysia and How Does It Work?

Key Takeaways

• Debt settlement is a strategy for individuals struggling with overwhelming credit card debt in Malaysia.

• Citywide Advisory’ primary task is to assist clients in applying for bank loans so they can consolidate all their credit card debts and personal loans into a new personal loan.

• Our clients can benefit from:

  • • Receiving a discount for full settlement.

    • Having a lump sum of money in hand.

    • Improving their CTOS record, making it easier to buy a house or car and borrow from the bank in the future.

    • Lower monthly payments than before.

• Debt settlement can simplify debt management and help achieve financial stability.

• But, clients should remain informed, sceptical of false promises, and aware of all potential risks before committing to a debt settlement plan.

If you want to reduce your financial burden and regain control of your finances, consider debt settlement!

Resolving debt can be challenging and stressful, especially when it seems like there’s no end in sight. But what exactly is debt settlement, and how does it work?

In this article, we’ll break down the basics of debt settlement in Malaysia, explaining the process, and how it can be a viable solution for managing and reducing your debt.

Whether you’re struggling with credit card bills, personal loans, or other forms of debt, understanding debt settlement can help you find a path towards financial stability.

What is Debt Settlement?

Debt settlement is a process where you negotiate with your creditors to pay off your outstanding debts for less than what you owe. This strategy is often used when you’re struggling to meet your financial obligations and need a way to avoid bankruptcy. In Malaysia, debt settlement has become an increasingly popular option for those seeking financial relief, but it’s important to understand how it works, its benefits, and potential risks.

Understanding Debt Settlement

Debt settlement involves negotiating with your creditors (e.g., banks, credit card companies) to reduce the total amount of debt you owe. Once an agreement is reached, you make a lump-sum payment or structured payments to settle the debt. Creditors agree to this because they prefer receiving a partial payment rather than risking getting nothing if you file for bankruptcy.

How Debt Settlement Works in Malaysia

1. Assessing Your Debt Situation:

• Evaluate your total debt, monthly income, and other financial obligations.

• Debt settlement is generally considered when you’re unable to keep up with your monthly payments and have exhausted other options like balance transfers or debt consolidation.

2. Engaging a Debt Settlement Company or Negotiating Yourself:

You can either negotiate directly with your creditors or hire a debt settlement company to handle the process. In Malaysia, there are licensed agencies that specialize in debt management and settlement.

3. Negotiation Process:

• Your goal is to convince creditors to accept a reduced lump-sum payment. Debt settlement companies may advise you to stop making payments temporarily, so your debt becomes delinquent, giving you leverage during negotiations.

• Creditors may agree to settle for less to avoid further losses.

4. Agreement and Payment:

• Once the creditor agrees to a reduced amount, a formal agreement is signed. You either pay the lump sum or make installments, depending on the agreement.

• After the payment is completed, your debt is considered settled.

5. Impact on Credit Score:

• Debt settlement negatively affects your credit score because it indicates you did not pay the full amount originally owed.

• However, settling a debt is still better than having an unpaid or defaulted account on your credit history.

6. Post-Settlement Financial Planning:

• After settling your debt, it’s crucial to rebuild your financial health. Creating a budget, saving regularly, and avoiding excessive debt can help prevent future financial problems.

Pros and Cons of Debt Settlement

Pros:

1. Debt Reduction: You can reduce your overall debt by negotiating to pay a lower amount than what you originally owe.

2. Avoid Bankruptcy: Debt settlement provides an alternative to bankruptcy, which has more severe long-term financial consequences.

3. One-Time Resolution: For those with a lump sum available, it provides a quicker resolution compared to extended debt repayment plans.

Cons:

1. Negative Impact on Credit Score: Your credit score will drop, affecting your ability to borrow in the future.

2. No Guaranteed Success: Creditors may refuse your offer, and the debt settlement process can take time.

3. Potential Legal Action: If you stop making payments during the negotiation period, creditors may take legal action.

4. Fees and Charges: Debt settlement companies typically charge a fee, which can reduce the savings you make from settling.

Key Considerations Before Opting for Debt Settlement

1. Evaluate Your Financial Situation:

Consider whether you have exhausted other debt management options, such as balance transfers, debt consolidation, or financial counseling.

2. Understand the Costs:

Be aware of the fees involved, especially if using a debt settlement company. Ensure the potential savings outweigh the costs.

3. Legal and Tax Implications:

In some cases, the forgiven debt might be considered taxable income. Check local regulations and consult a tax advisor if necessary.

4. Choose Reputable Companies:

If you decide to engage a debt settlement company, make sure they are licensed and reputable. Avoid scams and companies that make unrealistic promises.

Alternatives to Debt Settlement

Before opting for debt settlement, consider these alternatives:

1. Debt Management Plans: Work with licensed agencies to create a structured repayment plan.

2. Debt Consolidation Loans: Combine multiple debts into one loan with a lower interest rate.

3. Balance Transfers: Transfer high-interest credit card debt to a card with 0% interest for a limited period.

Conclusion

Debt settlement can be a viable solution for Malaysians facing overwhelming debt, offering a way to resolve financial difficulties without declaring bankruptcy. However, it is not without risks, particularly its impact on your credit score and the uncertainty of negotiation outcomes. It’s crucial to carefully weigh the pros and cons and consider alternative solutions before proceeding with debt settlement.

Citywide Advisory’ Loan and Consultancy Services

Citywide Advisory is a trusted bank loan and debt consolidation agency in Malaysia, offering an array of financial solutions, including:

• Personal loan services

• SME loan services

• Mortgage loan services (to purchase a new home, refinancing and cashback purposes)

• Collateral loan services

We also provide tailored loan advice customised to your individual circumstances, considering a variety of factors like:

• Required loan amount.

• Urgency of the need.

• Property ownership duration.

• Income level.

• CTOS score, including credit score and history.

Personalised Loan Consultancy Services in Malaysia

Citywide Advisory is the BEST loan advisory service in Malaysia.

Citywide Advisory also offers personalized loan consultancy services, helping clients understand and improve their rejected loan applications for refinancing housing loans and more.

We customise our loan recommendations based on an individual’s needs, considering factors like:

• The specific loan amount you require.

• The urgency with which the loan amount is needed.

• Whether you or your parents own a property that has been held for over ten years.

• Your income level.

• Your CTOS score (such as your credit score and credit history).

Our goal is simple: to help you find the right loan solution, paving the way to financial stability and debt freedom.

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