Debt consolidation checklist: when one loan to clear several debts makes sense

Two credit cards, a buy-now-pay-later plan and a small personal loan, each with its own due date, its own minimum payment and its own interest rate. Juggling several debts is tiring, and it is easy to miss a payment. Debt consolidation means taking one new loan to pay off several existing debts, so you are left with a single monthly instalment. Done well, it can reduce the interest you pay and give you a clear end date. Done badly, it just moves the debt around and can leave you owing more. This guide helps you tell the difference, with real numbers.

When consolidation helps

Consolidation tends to work when most of these are true:

• The new loan's rate is clearly lower than the rates on the debts you are paying off. Credit card balances that are not cleared in full each month are usually the most expensive debt people carry. In Malaysia, banks charge up to 18% a year on card balances, less for cardholders with a good payment record (under Bank Negara Malaysia's rules, the rate falls to no more than 15% a year after 12 consecutive months of paying at least the minimum on time). Your statement shows the rate that applies to you.
• You can afford the new instalment comfortably, with money left over for living costs and savings.
• The term is not much longer than the time you would realistically have taken to clear the old debts.
• You will stop adding new debt to the cards or accounts you have just cleared.
• There are no large costs to switch. AXAI Credit charges no processing or admin fees and no early-settlement penalty, but check whether any of your existing debts charge a fee for settling early.

When it doesn't help

Consolidation is the wrong tool, or at least not enough on its own, when:

• The real problem is that spending is higher than income. A new loan does not fix that. Within months, the cleared cards can fill up again, and you end up with the loan and the card debt.
• The new rate is not lower, or the lower rate comes with a much longer term that adds up to more interest overall.
• You are already behind on several accounts and cannot afford even a reduced combined instalment. In this case, free counselling from AKPK, including its Debt Management Programme, may be a better first step. See I have late payments in CCRIS. Can I still borrow?.
• Your existing debts are cheap or almost finished. A low-rate car loan with six months left does not need to be refinanced.

A worked example: RM 10,000 on a credit card

Suppose you have a credit card balance of RM 10,000. For this example, suppose your card charges 18% a year, and that you stop using the card and pay a fixed amount every month until it is cleared. This is a simplification: actual card interest depends on your card's terms and how the bank calculates it, so check your own statement.

We calculate both options the same way: equal monthly instalments on a reducing balance, with monthly interest of annual rate ÷ 12. The personal loan uses our current rate: 4.9% a year for every term from 3 to 108 months.

Clearing it in 12 months

Over 12 months, the personal loan costs about RM 734.21 less in interest, and the monthly payment is about RM 61 lower.

Clearing it in 24 months

Over 24 months, the saving is about RM 1,463.41.

The catch: a longer term can cost more

Now suppose you choose a 36-month personal loan because the instalment looks attractive:

• Monthly payment ≈ RM 299.26
• Total interest ≈ RM 773.38

That instalment is much lower, and the total interest is still about RM 228.23 less than clearing the card in 12 months at the assumed 18%. But the rate is the same 4.9% for every term, so a longer term simply means paying interest for longer: the 36-month loan costs about RM 505.98 more in interest than the 12-month loan, and about RM 255.01 more than the 24-month loan. The term matters as much as the rate. The best result usually comes from the shortest term you can comfortably afford.

A second example: a mix of debts

Real life is usually messier than one card. Suppose you owe:

Which debts to include? Only the two cards. The BNPL plan is interest-free and nearly finished, so paying it off with an interest-bearing loan would cost you money. The car loan is cheaper than a personal loan and is secured on the car, so it should stay as it is. That leaves RM 10,000 to consolidate.

Now compare clearing both cards yourself with one personal loan, over the same period:

The loan saves about RM 1,342.66 in interest and lowers the monthly payment by about RM 55.94. If you can afford to clear it faster, the 12-month comparison is: both cards about RM 911.82 a month and RM 941.90 in interest, against a 12-month loan at about RM 855.62 a month and RM 267.40 in interest, a saving of about RM 674.50.

Notice that the saving is smaller than in the single-card example, because card B's assumed rate is lower. The more of your debt that sits at the top rates, the more consolidation is worth.

Note: these figures are illustrations based on the assumptions above. Actual amounts follow your loan agreement and your cards' terms.

On payout day: settle everything properly

The loan only saves money if the old debts are actually cleared. Our licensed lending partner pays the loan into your own bank account, so settling each debt is up to you.

1. Ask each card issuer for the full settlement amount on the day you plan to pay, including any interest charged up to that date. The balance on your last statement may be slightly lower.
2. Pay each debt in full from your bank account, the same day the money arrives if you can.
3. Keep proof of every payment, and ask for a settlement or zero-balance confirmation.
4. Check the next statement shows a zero balance and no new interest.
5. Keep any small difference in your account as a buffer rather than spending it.

If your situation improves: settle early

There is no early settlement penalty with us. If you settle in full, you pay the remaining balance plus interest only for the days since your last due date (annual rate ÷ 360 per day), so settling right after an instalment adds no extra interest. If a full settlement is out of reach, a partial prepayment of at least RM 1,000 lowers your remaining instalments while the end date stays the same. Using the RM 10,000 over 24 months example, settling right after the 12th instalment: the remaining balance is about RM 5,157.01, and paying it in full would save about RM 177.66 of the interest still to come. On the 36-month version, settling after 12 instalments (balance about RM 6,912.58) would save about RM 552.91. You can try your own numbers in the early settlement calculator.

Alternatives worth comparing

A personal loan isn't the only way to consolidate. Before you decide, compare:

• Paying the most expensive card first. If you can afford more than the minimums, putting every spare ringgit on the highest-rate balance, while paying the minimum on the rest, costs nothing to set up.
• A balance transfer plan from your bank. Some cards offer a low or 0% promotional rate on transferred balances. Check the one-off fee, how long the promotion lasts and what rate applies afterwards.
• Talking to your card issuer. Banks may offer instalment conversion or a repayment arrangement for customers who ask early.
• AKPK's free counselling and Debt Management Programme (DMP), if you are struggling to keep up with several debts. It costs nothing to talk to them, and they can help you build a budget even if you don't join the programme. If you do join, AKPK agrees one repayment plan with your banks; your credit cards are suspended while you are on it, and lenders can see the arrangement in your CCRIS report. AKPK doesn't blacklist anyone, but whether you get new credit during the programme is up to each lender.

Your consolidation checklist

Work through this before you apply:

1. List every debt. For each one, write down the balance, the annual rate, the monthly payment, the months left and any early-settlement fee.
2. Total the monthly payments you make today.
3. Decide which debts to include. Start with the most expensive. Leave out 0% plans and cheap secured loans.
4. Compare total interest, not just the instalment. Calculate what you would pay in total if you kept going, and what the new loan would cost in total.
5. Pick the shortest term you can afford. Use our affordability calculator to check that the instalment leaves enough for living costs and an emergency buffer.
6. Borrow only what you need to clear the chosen debts, not extra "while you're at it".
7. Plan the payoff. Get settlement amounts ready, so each debt is cleared as soon as the loan is paid out.
8. Decide what to do with the cleared cards. Lower the limit, put the card away, or close the account if you know you will be tempted.
9. Set a reminder or a standing instruction with your bank for the new instalment, and send your adviser the payment reference each month so it is recorded.
10. Check your CCRIS report a few weeks later to confirm the old accounts show as settled.

Common mistakes

The numbers above only work if your behaviour changes too. The most common ways consolidation goes wrong:

• Refilling the cards. Having a zero balance on a card can feel like having money available. If the card is used again, you end up with both debts.
• Stretching the term for comfort. A smaller instalment feels good every month, but you pay for it in total interest, as the 36-month example shows.
• Consolidating cheap debt. Paying off a 0% plan or a low-rate car loan with a personal loan increases your cost.
• Treating it as a fresh start without a budget. Write down where your money goes each month. If you cannot see why the debt built up, it is likely to happen again.
• Borrowing a little extra. Topping up the loan for a holiday or a new phone defeats the purpose.
• Leaving the old debts open with a small balance. Interest keeps running on whatever is left.

If you are not sure whether consolidation fits your situation, it is worth reading how we approach this on our responsible lending page. We would rather you borrow less, or not at all, than take a loan that makes your month harder.

How it works with us

Our personal loan ranges from RM 1,000 to RM 100,000, over 3 to 108 months, with equal monthly instalments, no processing or admin fees, nothing deducted from the payout and no early-settlement penalty. See Is early settlement worth it? for how much settling early can save. You can apply online in about three minutes, after which an adviser continues with you on WhatsApp. Tell your adviser that the loan is to consolidate debts and which ones, so the amount matches what you need to clear. Our licensed lending partner checks CCRIS and CTOS with your consent, and every application is assessed on its own merits.

Summary

Debt consolidation can save real money when the new rate is clearly lower, the term is not stretched, and you stop building new debt. In our example, moving a RM 10,000 card balance at an assumed 18% to a 12-month personal loan at 4.9% saves about RM 734 in interest, and over 24 months the saving is about RM 1,463. With a mix of two cards, the 24-month saving is about RM 1,343. But choosing a 36-month term would cost about RM 506 more in interest than a 12-month loan at the same rate. Include only expensive debts, compare total interest, pick the shortest affordable term, settle every old debt properly on payout day, and put a plan in place for the cards you clear. Questions? Call 011-2102 9366.

This article is general information only and is not personal financial advice. Approval and loan amounts are subject to assessment and your loan agreement. How we write and check our guides