How much debt should a Malaysian household have?

Since the late 2000s, there has been a growing gap between the actual household debt of the average Malaysian household to the acceptable amount.

A recent report released earlier this month recorded the nation's household debt for year 2013 rose to a new high of 86.8% of gross domestic product (GDP) from 80.5% from the previous year making it the highest in Asia.

It is conceivable that if such a trend continues, it would affect the general economic state of the country more than merely financially burdening the household of countless Malaysians.

It is, thus, becoming increasingly important to combat this rising debt problem, and there are certain steps with which we must take in order to do so.

Identifying the problem

One important thing every Malaysian should ask is: "Am I part of the demographic that simply owes too much?"

There are a few solid indicators that would point towards that. There is, of course, the matter of the actual numbers.

It is stated by many financial institutions that a manageable amount of debt eats up no more than 40% of your income. This pertains to all of your debt put together.

The less of your income that goes towards debt, the better. However, if it does exceed that 40%, if your consolidated debt payments eat up almost half or more of your income, then you owe way too much.

And it does not matter how much you make, or how comfortably you live with amount of money you actually take home.

Having that much debt will become a burden especially in the future, when interest rates start rising.

Another strong sign that your household has way too much debt is the amount of compromises that you make financially.

Even if you do manage to pay your debts on time on a regular basis, examine the rest of your finances.

Does paying your debts lead to you sacrificing some of your other financial commitments?

For instance, if you pay your credit card bill now, would that mean a late payment on your car loan?

Or even if you do meet the requirements of all your financial obligations, examine your type of lifestyle.

Can your lifestyle can be considered lower than what is expected considering your pay?

Financial compromises are often necessary, but when the amount of compromise you make is too great, then that means your debts are taking a toll on your financial health.

Identifying the problem is simply the first step towards a long process of lowering your debt, but it is a very important one.

If you do have that much debt, then it is prudent to start coming up with ways to address that problem.

Meeting the problem head-on

Taking care of a massive debt means paying off or significantly lowering the debt in as short a time as possible.

This means a great deal of financial adjustment and foresight.

Planning a course of action to fix your household debt problem begins with assessment.

Assessing your household's finances pertain to taking every single aspect and financial activity you make.

How much money is being made? How much money comes out, and why?

Examine your spending habits, your regular income, and your financial commitments thoroughly.

Remember that there is no negligible amount here. Even the smallest expenditure needs to be considered.

Once you have a firm grasp of your household's financial activities, then comes the time to make adjustments.

In what specific areas can you spend less money on? Where exactly can you save on? How much money can you add towards debt payment?

What specific debt payment comes first? Always make sure your decisions are in line with the main objective: the elimination of debt.

Debt from a personal standpoint

If you are an average Malaysian like many of us, making ends meet seems like it takes a lot of doing and personal sacrifice.

This is why it is vital to make financial plans, ones that take the long term into consideration.

Debt is a burden that affects most of us, not just on a financial level but on a personal and mental on too.

The amount of stress that comes with knowing a huge chunk of our hard earned money does not even reach our pockets is staggering.

To answer the question, "how much debt should a Malaysian household have", the banks say not more than 40% of our total income.

However, for a sounder and better financial future, let us start teaching ourselves to aim for much lower than that.

CompareHero is the leading Malaysian financial comparison platform, aimed at helping Malaysians save time and money. Visit CompareHero here.