What Is Debt Consolidation?
Debt consolidation means taking one big loan to pay off all your smaller loans at once (or combine your loans into one). This leaves you with just one bill to take care of. For example, if you owe RM8,000 and RM5,000 on two credit cards, plus another personal loan of RM12,000, you can simplify these three separate debts by consolidating and paying for all of them in one RM25,000 loan.
Why Would I Wanna Do This?
Debt consolidation is a good choice if you have multiple outstanding credit cards or personal loans. You can choose a longer loan tenure to bring down the monthly loan payment. You should only consider refinancing with a personal loan if it lowers the annual percentage rate of your credit card debt, mortgage, car loan, or other debt.
Through debt consolidation, you only have one bill AND one interest rate. Here’s an example:
No Debt Consolidation:
You have credit cards A, B, and C. You owe the bank RM15,000 (RM5,000 for each card). All cards have an interest rate of 18% p.a. and you are currently paying RM200 per month for each card.
This means you will need to continue paying RM600 for the next 32 months to clear off your debt. The total interest rate you’ll pay is RM3,941.91.
Debt Consolidation with a personal loan:
You have the same 3 cards, and now you apply for RM15,000 personal loan at 6.5% p.a. and you use this to pay off all your credit card debts.
Your total interest cost will be 6.5% x RM15,000 x 3 years = RM2,925.
You’ve saved RM1016.91 in total interest costs.
The example above is only for credit cards of course. You can use debt consolidation to pay off other loans like hire purchases, too.
How do I apply for debt consolidation personal loans in Malaysia?
Most banks require you to be:
- a Malaysian Citizen or Permanent Resident
- aged 21 and above (but not over 60 years old)
- earning a monthly gross income of at least RM3,000 or more
Proof of identification, income, and residence must also be submitted to be approved for a personal loan. Banks will also look at your credit rating.
Be sure to review the borrowing limit, approval times, interest rates, and minimum requirement for a successful personal loan application.
How much can I borrow with a debt consolidation personal loan?
Many Malaysian banks can lend from RM1,000 to RM400,000, depending on the borrower’s credit history or rating. Most banks and lenders set an upper limit which can range from three to four times the amount of your current salary, or a fixed amount. Whichever amount is lower will be the highest amount the borrower can have.
Lowest interest rate loans typically range between 4.8% to 8%
