How to find your most burdening loan

How would you feel if you found out you were short of RM18,000 every month?

That was the situation James was in when he came to my workshop.

James is not his real name. He was a business owner who looked quite relaxed. He went through the workshop, and when it was time for our one-to-one coaching, he showed me his Financial Compass.

I was shocked.

I asked him, “How do you feel?”

“Like that lo,” he replied.

You know that feeling when you have been carrying something for so long that you almost get used to it? His answer stayed with me.

Let me share his background first

This was around May 2020, at the beginning of Covid. The loan moratorium had given him some relief, but James told me the problem had started even before the pandemic.

When we went deeper, he shared what had happened: business failures, being caught in scams, and overinvesting in properties.

He was earning around RM27,000 a month, including RM7,000 of rental income. On paper, that sounds comfortable, right?

But he also had company borrowing, personal loans, money owed to a creditor and a car loan. Those balances came to about RM752,000, before including his property loans.

He had a family depending on him. His wife had not been working since they married, and they had two daughters.

I could relate to the pressure. I had been through a deficit myself. Mine was not RM18,000 a month, but I knew how painful it could be when the money coming in could not cover what needed to go out.

So my first concern was how to reduce the monthly pressure.

Are you in Category A or Category B

Before we talk about which loan to settle, let me ask you this: after paying your commitments and living expenses, do you still have money left?

If you do, you are in what I call Category A: monthly surplus.

If the money going out is more than the money coming in, you are in Category B: monthly deficit.

If you are unsure, start with my ICE JAR explanation. I walk you through Investment, Commitment and Expenses so you can see where the pressure is coming from. Add up the actual outflows and compare them with your income to find your overall surplus or deficit.

This matters because someone who has a surplus may have room to prioritise interest savings. Someone like James needs to address the monthly shortfall too.

In my workshops, I compare this with stopping the bleeding first. If you keep needing another RM18,000 just to get through each month, the pressure continues to grow while you are trying to solve it.

How do you fit RM752,000 of debts into RM350,000

One advantage James had was that he bought properties earlier in his career. They had appreciated over the years, so there was a property-based consolidation option to examine.

But there was a limit. We could not simply put all RM752,000 of debts into the RM350,000 facility discussed in my follow-up example.

So which debts should go in first?

This is where I use IBR: Instalment Burden Ratio, a term I introduced in my workshops.

IBR = monthly instalment ÷ current outstanding balance × 100%

For example, if your outstanding balance is RM15,000 and the monthly payment is RM1,500, your IBR is 10%.

IBR helps me see how much monthly instalment is attached to each ringgit of outstanding debt. A higher percentage tells me to look more closely at that loan’s pressure on your cash flow.

It is not the interest rate. Please do not read a 10% IBR as 10% annual interest.

Now look at James’s loans

These were the three debts selected in the IBR example:

Can you see why the car loan caught my attention?

The balance was RM27,500, but the monthly instalment was RM2,710. Settling that particular balance would remove a relatively large monthly payment.

Next was Creditor A, followed by the personal loan. Together, the balances came to RM293,800 and the instalments came to RM12,481 a month.

There was still RM56,200 between those balances and the RM350,000 facility. But the next company-loan balance was RM450,000. It would not fit.

That remaining room was not a reason to borrow extra for spending. We still needed to check the amount actually required and the full cost of the arrangement.

Why would I consider settling the car loan first

I know what some of you are thinking.

“Ka Hoe, why the car loan? Shouldn’t we look at the interest first?”

Yes, we need to look at interest and settlement terms. We also need to remember James’s situation: he was already in deficit, and this particular loan had the highest IBR among the selected debts.

The question was how much monthly pressure could be removed, at what cost, and with what consequences.

In the follow-up illustration, RM350,000 at 3% a year over 23 years gave a modelled payment of about RM1,757. The calculation shown was RM12,481 − RM1,757 = RM10,724 of monthly repayment relief for that illustrated comparison.

Those were the financing assumptions used then. A longer repayment period and property security bring trade-offs, so the monthly reduction must be read alongside the full repayment cost and the risk to the property.

The important part is to add the actual new consolidated instalment back into the full monthly repayment picture. You cannot treat the payments removed as the amount now available to spend. The RM10,724 illustration is a line-item comparison; the whole-household before-and-after result below is the figure to use for James’s overall repayment reduction.

The change was about his family too

In James’s overall case comparison, repayments came down from RM22,360 to RM13,500. That is RM8,860 less going out each month, with the post-restructure repayments included. Keep this full cash-flow comparison beside the larger illustration, so you do not overstate the money actually freed up.

What I remember from the case is his response afterwards.

“I can only say thank you as I did not expect I could get this kind of result from joining his workshop.”

He started enjoying time with his family again: picnics at the farms and seaside, and steamboat at home.

His situation still had room to improve. But reducing the pressure mattered to the people waiting for him at home.

Now try this with your own loans

Take out your car loan, housing loan, personal-loan and card statements. Include money owed privately too. Use my Debt Management Template to list the balances and monthly payments together.

Calculate each IBR. Then check the actual settlement quotations, remaining terms and costs before deciding what to do. A loan almost at its final payment may need a different decision from one with years remaining.

If you want to understand how I compare consolidation options, continue with Jason’s story.

And if you are earning well but still short every month, come through Money X-Ray. Let’s first understand what is causing your deficit and which direction is appropriate for your situation.

James and Creditor A are pseudonyms. This is an actual historical case and its related worked example; the figures do not promise the same outcome for everyone.

P.S. AKPK offers financial counselling and a debt-management programme. My starting point is to review your full picture: cash flow, debts, assets and how your money is allocated through ICE JAR. Through Money X-Ray, we assess whether education, coaching or DCS4U support is suitable, including whether there are workable options outside enrolment in AKPK’s debt-management programme. That depends on your circumstances; it does not mean everyone will qualify for restructuring or a new facility.

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