Here’s How Debt In Malaysia Can Make You Richer (Sometimes)

Debt often carries a negative reputation. In Malaysia, the word alone can trigger images of sleepless nights, unpaid credit cards, and relentless calls from collection agencies. Many families advise their children to avoid debt at all costs, equating it to financial failure. Yet, debt in itself is not inherently bad. 

It is a financial tool and like any tool, it can either harm or help depending on how it is used. When wielded strategically, debt can actually open doors to wealth-building opportunities that might otherwise be out of reach. 

This is the distinction between what financial planners call “good debt vs bad debt”.

The difference between good and bad debt

Not all debt is created equal. Bad debt usually involves borrowing for things that depreciate in value or do little to improve your financial position, such as personal loans for luxury shopping or piling up credit card balances for lifestyle expenses. These debts eat away at your income through high interest rates without leaving you with any asset in return.

Good debt, on the other hand, is money you borrow to invest in something that has the potential to grow in value or generate income in the future. Examples include home loans, education loans, or even business loans. These borrowings allow you to leverage funds you may not currently have, to invest in something that can yield returns far greater than the cost of the loan itself. The key lies in the return outweighing the interest you are paying.

Property: The most familiar example of good debt in Malaysia

Take property as an example. Buying a home is one of the most common ways Malaysians take on debt, in fact, Bank Negara Malaysia reported that housing loans make up over 60 per cent of household borrowings. While the thought of a 30-year mortgage can feel overwhelming, it is important to see it as an investment rather than a burden. Property, especially in growing urban areas like the Klang Valley, Johor Bahru, or Penang, generally appreciates in value over time.

If you bought a home ten years ago at RM400,000 and it is now worth RM600,000, your debt has effectively enabled you to gain RM200,000 in equity, minus the interest you have paid. Even if your mortgage repayments feel hefty each month, the long-term growth in property value can make the debt worthwhile. This is why many Malaysians still view property ownership as the cornerstone of building wealth.

Education loans: Borrowing to increase your earning power

Another area where debt can work in your favour is education. While the PTPTN loan has often been criticised for saddling young graduates with obligations before they even start their careers, the long-term benefits can be significant. A degree or professional qualification can open doors to higher-paying jobs, giving you the means to repay the loan and still come out ahead financially.

For instance, a graduate who spends RM40,000 on tuition through PTPTN financing may secure a job paying RM3,500 a month compared to RM2,000 without a degree. Over the course of a decade, that difference adds up to RM180,000 in additional income, far outweighing the original loan amount. In this sense, education debt is an investment in your future earning power.

Business loans: Borrowing to create value

Entrepreneurship is another example where debt can be a stepping stone to wealth. Small businesses in Malaysia often rely on financing, whether through SME Bank, government-backed schemes, or commercial loans. A well-structured business loan can give you the capital to expand operations, hire staff, or invest in equipment that boosts productivity.

Of course, business debt carries risk, as not every venture succeeds. However, many of Malaysia’s thriving SMEs today, from food and beverage chains to e-commerce platforms,  were built on loans that allowed their founders to scale up at the right time. When a loan is used to grow revenue and create long-term value, the benefits can far outweigh the interest costs.

Using debt for investing? Tread carefully

Some Malaysians also use debt to invest directly in financial markets, such as through margin financing or personal loans for stock investments. This is perhaps the most risky form of leveraging, as market volatility can easily wipe out gains and leave you stuck with repayments. However, when managed with caution, borrowing to invest can accelerate returns.

For example, if an investor borrows RM50,000 at an interest rate of 5 per cent annually and invests it in a diversified portfolio generating 10 per cent returns, the net gain after interest is still 5 per cent. The problem arises if markets turn and the portfolio falls in value. This is why using debt for investments should only be considered by those with strong financial literacy, a stable income, and a high tolerance for risk.

Debt as a disciplined savings tool

Interestingly, debt can also help those who struggle with savings discipline. A mortgage, for instance, forces you to set aside money each month towards building an asset. Unlike rent, where monthly payments vanish into a landlord’s pocket, mortgage repayments gradually increase your equity in a home. In this way, debt acts as a kind of “forced savings plan” that builds long-term wealth, especially for people who might otherwise spend rather than save.

The golden rule: debt must serve you, not the other way around.

While debt can indeed make you richer in certain circumstances, the danger lies in overborrowing or misusing loans. The golden rule is to ensure that any debt you take on serves a productive purpose, either by increasing the value of your assets, boosting your earning power, or generating income. If debt only funds short-term consumption, it is unlikely to create wealth.

In Malaysia, household debt levels remain among the highest in Asia, hovering around 81 per cent of GDP. This underlines the importance of borrowing responsibly. Pairing loans with a minimalist lifestyle, focusing on needs over wants, can help keep borrowing in check and ensure that debt works for you rather than against you. For debt to be a wealth-building tool, it must be supported by sound financial planning, realistic repayment strategies, and a clear understanding of risks.

Debt can sometimes be a stepping stone, not a stumbling block

At its worst, debt can trap families in cycles of repayment and financial stress. But at its best, debt can be a stepping stone to a more secure and prosperous future. By distinguishing between good and bad debt, Malaysians can change their mindset and use loans as a tool for growth rather than a burden. Whether it is buying a home, investing in education, or building a business, the right kind of debt, managed wisely, can indeed make you richer over time.