Irwan’s

As I have promised, here is the explanation of the ASB loan with OD facility. You can download the Bahasa Malaysia Version in my earlier post. This is not a step-by-step guide as I haven’t try the method myself. Instead, I will try to explain the concept behind this method.

First of all, you basically need 3 stuffs to make this method working.

• A significant amount of ASB saving (this can be either from your saving or loan)
• An overdraft facility against the ASB account above.
• Credit Card

1. When you have these 3 items, the first thing that must do is to pay all outstanding balance in your credit card (CC) account.

This step is to avoid paying expensive 18% charges by CC providers. Instead, you only have to pay (7%) OD fees.

2. When you receive your first paycheck for the month, put 70% of your paycheck to OD account, and 30% to your ASB account

You want to do this because you can save OD fees by reducing the balance as soon as possible. Remember that OD fee is charged daily. Meaning, the balance in OD is charge 0.0191% (7% divide by 365) daily. The 30% investment is to grow your ASB account as you get more benefits investing in ASB than saving OD fees.

3. Use your CC for the bills and other expenses that are payable by CC. Don’t spend more than you usually do. If not, you won’t be able to improve your financial state.

Why use CC? CC enables you to use money free (for 50 days) without paying any fee if you can clear the balance before Due Date. If you instead use your OD account, you’ll be charge 0.0191% daily. So from alternative point of view, you are actually saving 0.0191% daily.

4. Pay your CC balance only at the Due Date for the current month (which is usually next month). Use the money from OD to clear all your balance. If you spend less that you should with your CC, make a cash advance from your CC (I could only advice doing so when there aren’t much fee to do cash advance)

The reason to pay at the due date is to maximize saving by delaying the use of money from OD account. For the cash advance part, please do not do this if you are charged expensive fee to make cash advance.

5. For the expenses that need cash, withdraw it from your OD account.

Please minimize the usage of OD this way.

6. Repeat the process for the next month.

As pointed out by one of the comments in my first post, this method is highly effective if you have substancial amount of credit card outstanding balance. This is because you can avoid 18% charges by moving the balance to your OD account. I’m not sure how much saving you could get if you are debt-free as what you could save is only the 0.0191% daily OD fees for maximum of 50 days.

OD method is not that easy to follow as you need to micromanage your money by remembering the important dates, paying your CC at due date and so on. I could only advice this method if you have CC debt. Other than that, it’s not worth the trouble and the risk.

If you have any comment or opinion or want to correct me, please use the comment section below.