Paying Off Debts or Saving ?
In an ideal world, we’d all have zero debt and plenty of savings in the bank. But reality in Malaysia is very different — many people have commitments like car loans, personal loans, credit cards, or even PTPTN. So the common question is: Should I pay off my debts first or start saving?
The short answer: do whichever you like.
The more thoughtful answer: let’s look at it properly.
Types of Debt
There are “good debts” and “bad debts.”
Good debt is borrowing that helps generate income. For example, a home loan for a property you rent out. Say you buy a RM300,000 apartment fully financed by the bank. You pay 4% interest (about RM12,000 a year), but you rent it out at 6% (about RM18,000 a year). That’s RM6,000 profit before expenses — the debt is working for you.
Bad debt is borrowing that only drains your money. Example: an RM80,000 car loan where you pay interest and instalments monthly, but the car depreciates in value. Credit cards with 15%–18% annual interest are another classic bad debt.
Types of Savings
Savings also come in categories:
Emergency fund – to cover unexpected situations like car repairs, medical bills, or sudden job loss.
Goal-based savings – like saving for a home, children’s education, pilgrimage, or retirement.
For this discussion, let’s focus on bad debts vs. emergency savings.
Which Comes First?
Imagine you have a credit card balance, a personal loan, and a car loan — but zero savings. That’s actually quite common in Malaysia.
From a purely financial calculation:
Credit card interest: 15%–18% p.a.
Personal loan: 7%–10% p.a.
Car loan: 3%–4% p.a.
Meanwhile, your fixed deposit savings might earn just 2.5%–3.5% p.a.
Clearly, it makes more sense to pay off debt first — every ringgit you use to reduce debt is like “investing” with a guaranteed 7%–18% return (depending on the debt).
But in Reality…
Math says clear debts first. But psychologically, having zero savings is stressful.
Ideally, your emergency fund should be 3–6 months of expenses. If you spend RM3,000 a month, that’s RM9,000–RM18,000.
But if you’re still servicing debt, just build a small buffer of RM1,000–RM2,000. Enough to handle a car repair or small emergency, while you continue focusing on paying down debts.
Other Factors to Consider
Credit profile (CCRIS / CTOS): If your loans or cards are always maxed out, banks think you can’t manage money. Keeping your utilisation below 60% looks much better.
Emergency access: By reducing debt, you free up more “credit space” that can be tapped again in real emergencies.
Discipline: If you save money but keep dipping into it for daily spending, it’s probably better to just throw more money at your debts.
Conclusion
The quick answer: Pay off bad debts first before building up big savings.
But — keep a small emergency fund (RM1,000–RM2,000) so you don’t panic if something unexpected happens. Once you’ve cleared the expensive debts, then start growing your long-term savings: retirement (EPF + PRS), home purchase, children’s education, or investments.
And most importantly — always track your finances. Many Malaysians don’t know exactly how much they owe or have saved because they don’t record it. Start with a simple net worth tracker to monitor your journey towards being debt-free and financially secure.