EPF’s advice on how to become debt-free (not about financial independence)

EPF’s advice on how to become debt-free

My personal thoughts about becoming debt-free

My personal opinion is that financial independence is very different from being debt-free. We can be debt-free and yet not financially independent. Debt-free simply means we do not have debts. No credit card debts, no home loans, no car loans, no need to pay any debts. At the same time, it could also mean no credit card (did not apply for one or does not qualify for one), no home loans because one is still renting (renting is NOT a debt yeah… unless we start to owe rental) and does not own car because one is taking the public transport which is super cheap with the My50 which comes with unlimited travel for 30 days.

Meanwhile financially independent may mean we can still have some debts. Maybe some home loans, one car loan etc. However, at the same time, our total earnings are by far higher than all these and the earnings come from work we like versus having to be a slave to a job which we hate. Earnings would also include returns on investments which we have, the rental income which we have and any other incomes. We could choose to have a full time employment or not to have a full time employment. When the choice is ours and we make them without any worry, then we have reached financial independence.

So, we need to be very clear what is our true goal; debt-free or financial independence.

EPF has great advice for all Malaysian on how could we become debt-free

Source: https://www.kwsp.gov.my/en/w/article/financial-independence

1. Debt avalanche method

Which debt should you pay off first? 

Pay off debts with the highest interest rates first. By focusing on these debts, you can: 

• Save on interest payments in the long term. 
• Accelerate the overall debt repayment process. 
• Improve your credit score through consistent payment records in CCRIS and CTOS reports. 

💡 Who it’s for: Those who want to reduce interest costs strategically and achieve financial freedom faster through careful planning. 

2. Debt snowball method

How can small wins keep you motivated?

Pay off the smallest debt first to gain early satisfaction and motivation to tackle larger debts.  

💡 Who it’s for: Those who are new to debt management, may lose motivation easily, or want to see quick results to stay encouraged. 

3. Debt snowflake method

How can extra savings help clear debts faster?

Use the extra money saved from daily activities to make additional debt payments. Even small amounts can significantly accelerate the repayment of outstanding debts and positively impact your credit record.

💡 Who it’s for: Those with a limited budget who are disciplined and want to see steady, consistent progress in reducing their debts. 

4. Debt consolidation

How can you simplify debts into one payment?

Combine all your debts into a single new loan with a lower interest rate. By consolidating your debts into one monthly payment, you not only simplify your financial management and reduce stress, but you give yourself more room to plan for a debt-free future.

💡 Who it’s for: Those who want to reorganise multiple debt commitments and make them easier to manage.

The article is comprehensively written. Read it here: Source: https://www.kwsp.gov.my/en/w/article/financial-independence

I have yet to be able to achieve debt-free or financial independence

I have home loans. After many years without car loans, 12 months ago, I purchased a new car for my wife. So, I am not debt-free. I have not yet achieved financial independence. Maybe I could achieve it once my two children have graduated and I no longer needed to worry too much about them. I do hope they get good jobs and earn good salary.

Just remember that every year that some tenant is paying us rental means we are paying one extra year of principal payment and at the same time, waiting for the property price to continue moving up. Debt-free is merely sometime in the near future. There is no need to be debt-free because even if we have fully paid for the home, the rental remains the same… However, the funds are now tied to the home and is longer productive. There is no difference between putting RM500,000 under the bed and also staying in a full paid RM500,000 home. Both do not give us returns. Maybe we save on rental but that’s all. That fully-paid RM500,000 home does not generate anything extra at all.

When my children have started working, I will push for debt-free and financial independence

By then, I do not wish to have any home loans. I would sell properties I have and maybe just maintain one where we would be staying the most. I would have fully paid for my wife’s Alza and maybe we could buy two cars for the children and let them take up those loans instead. In other words, my plan remains to become debt-free and also financial independence at the same time.

What about you? If you are like my close friend who’s single, things are far easier. She’s already fully retired from any full time employment and could wake up any time she likes. Now, that’s financial independence yeah. At the same time, she still have a home loan but it’s covered by the rental. So, she’s not debt-free but she’s definitely financially independent.

Do you have children? Are you thinking something similar like me? All the best to us.

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