In December 2024, Malaysian household debt had reached RM1.63 trillion, according to news reports. While not all debt is bad, having debts that are unhealthy for your finances could lead to you needing to pay additional costs and be burdening.
For example, recently in a Threads post, an engineering graduate lamented about having to pay monthly car instalments of RM1,000 after being pressured by his family to buy a foreign brand vehicle starting with the letter ‘H’. Initially he wanted to buy a local car, but his family had deemed that an engineering graduate should be driving a foreign car instead.
By understanding our current debt situation, we may be able to get a better insight and implement good money management habits. Here are the top four reasons why Malaysians get into debt and how to avoid them.
Read Also: 5 Ways You Rack Up Debt Without Knowing It
#1 Housing Loan
Housing loans constituted the largest portion of total approved household debts at RM12.87 billion as of January 2025. There was a 10.3% year-on-year decrease in the amount of housing loans taken out.
Buying a property is one of the largest expenses of a household and it’s difficult to pay for upfront. The average price of a house in Malaysia is around RM480,000 in 2024, with an annual growth of 3.3%. Affordable homes priced RM300,000 and below make up more than half of total residential property transactions.
Home debts are generally considered as good debts when they add to your wealth and increase your net worth.
#2 Car Loan
Passenger cars make up the second largest portion of total household debts at RM7.88 billion. Car loans also saw a 19.3% year-on-year drop in January 2025.
In 2024, new vehicle sales broke the record 800,000 mark, with 816,747 vehicles purchased. The launch of new car models and competitive pricing had played a part in driving the high volume of sales.
Several electric vehicles were launched in 2024 including the BYD Seal and Cherry Omoda. The most popular car models however remain to be local makes including Perodua and Proton. Perodua Bezza, which has an affordable starting price of RM36,000, recorded the highest sales volume of 100,000 cars.
#3 Personal Use
Loans taken for personal use such as weddings and home renovations amounted to RM3.22 billion – the third highest of all household debts.
Additionally, loans for personal use saw the highest year-on-year increase of 16.9%.
In Malaysia, personal loans are the top reasons people fall into insolvency.
#4 Credit Card
Households in Malaysia had an accumulated credit card debt of RM1.84 billion, with a 9.8% year-on-year increase.
A report by CTOS found that two thirds of Malaysians have an average outstanding balance of RM11,955 per person on their credit card.
How To Avoid Debt
To avoid falling into debt in the first place, one can practice good financial habits such as creating a budget to help you stay on track with your expenses. You can also build emergency savings that will cover your expenses for three to six months in case of unexpected circumstances.
When it comes to borrowing money, make sure that you can afford to make repayments with your current income. If you base your decision on future income expectations, there’s a risk that your plans may fall through, and you won’t be able to repay your debt.
Borrowers should also be committed in paying their debts in a timely manner. This includes paying off your balance in full each month to avoid interest charges. If you often forget to make monthly repayments, you can consider setting automated payments such as setting up a standing order with your banking institution for a nominal fee to debit funds from your deposit account to pay monthly installments.
If you can’t pay the entire balance, pay more than the minimum amount as this will reduce your debt balance faster. When you have extra money such as bonus, allocate some of them to repaying your debts.
Borrowers who need further assistance in dealing with their debts can contact the Credit Counselling and Debt Management (CCDM) Agency or Agensi Kaunseling dan Pengurusan Kredit (AKPK).
Although some of us want to be free of debt, the reality is many of us need financing to achieve some financial goals such as buying a house and furthering our education.
It is when individuals are not prudent about their spending and way of handling debts that accumulated debts can lead to financial instability.
Read Also: Debt Consolidation – This Is How It Works
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