This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on June 14 - June 20, 2016.

Q:My friend, who started working five months ago as a sales representative, was told that he had to clear his outstanding university tuition fees (some RM17,000) to be allowed to attend his convocation and get his scroll. He is thinking of getting a personal loan to pay off the debt. Is this a wise thing to do, or are there any other options for him? > Jane

Felix Neoh
Independent financial adviser, 
Whitman Independent Advisors Sdn Bhd

A: We firmly believe in the sanctity of the contract between your friend and his university, whereby the university should be paid what it is rightfully owed. With his employment income and given time, he should be able to meet this financial obligation. Nevertheless, it is understandable that he is likely to face the predicament that many other fresh graduates are facing, that is their starting salaries would hardly be sufficient to meet their living expenses, let alone pay off a RM17,000 debt.

Thus, the first option for him would be to negotiate with the university for more favourable terms of payment. This could mean a deferred payment arrangement for the next one to two years or a staggered repayment schedule that he can afford.

Another option would be to pay down the outstanding amount from any savings that he might have. Fixed deposit rates are roughly 3.2% per annum for 12-month placements. This makes using his savings to pay down the debt a more sensible option than taking on a personal loan. He could also try to secure a small loan from family members or close friends on goodwill terms. Having said that, he needs to be committed to paying off any borrowings from family and friends to ensure that their relationships are not jeopardised by any unpaid debt.

Finally, your friend can explore the option of securing a short-term personal loan from licensed financial institutions, which offer interest rates of 8% to 14% per annum for three years (subject to terms and conditions). Assuming that your friend is able to secure a loan at 8% per annum, the monthly payments will be around RM585. If this commitment proves too challenging, then your friend could consider a slightly longer duration. But it should not be longer than five years to minimise the overall interest charges.

It would be wise for your friend to attempt a combination of any or all of the above suggestions with the intention of minimising the personal loan borrowing. Only consider a full personal loan to offset the university fees as a last resort. Irrespective of the options he chooses, he should draw on his resourcefulness to boost his income quickly while remaining committed to paying off this debt in the shortest possible time.

Have a personal finance query? Send it to: Consult the Experts, Personal Wealth, Level 3, Menara KLK, No.1, Jalan PJU7/6, Mutiara Damansara, 47810 Petaling Jaya, Selangor; Fax: (03) 7721 8018; email: [email protected], Attn: Consult The Experts. Please include your full name, address, contact number and pseudonym, if any.

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