{"id":48787,"date":"2024-07-26T17:34:58","date_gmt":"2024-07-26T09:34:58","guid":{"rendered":"https:\/\/www.imoney.my\/articles\/?p=48787"},"modified":"2025-02-18T14:22:41","modified_gmt":"2025-02-18T06:22:41","slug":"debt-consolidation-loan","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/debt-consolidation-loan","title":{"rendered":"Here\u2019s How Debt Consolidation Can Help You Reduce Your Interest Payments"},"content":{"rendered":"

Dealing with debt can be tough. It\u2019s easy to feel overwhelmed when you\u2019re struggling with credit card debt, personal loans and high interest charges. But there\u2019s a repayment strategy that could help – here\u2019s where debt consolidation comes in.<\/p>\n

<\/span>What is debt consolidation?<\/span><\/h2>\n

Debt consolidation<\/a> means combining your existing high-interest debts (such as credit card debts) under a single loan.<\/p>\n

But why would anyone who\u2019s struggling with high-interest debt take on more debt? Well, when you combine your debts under a loan with a lower interest rate, you get to save money on interest payments. This lowers your monthly repayment and gets you out of debt faster.<\/p>\n

Besides that, having just one loan to deal with can be more convenient. Instead of keeping track of multiple debt payments with different due dates, interest rates and minimum payments, you\u2019d just have to deal with one monthly payment.<\/p>\n

<\/span>How does it work?<\/span><\/h2>\n

Let\u2019s take a closer look at how debt consolidation works. Let\u2019s say that you have multiple existing debts that total RM65,000.<\/p>\n

Example: existing debt<\/strong>\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t
Debt<\/th>Balance<\/th>Interest rate (p.a.)<\/th>Monthly repayment<\/th>\n<\/tr>\n<\/thead>\n
Credit card A<\/td>RM13,000<\/td>18%<\/td>RM650<\/td>\n<\/tr>\n
Credit card B<\/td>RM16,000<\/td>18%<\/td>RM800<\/td>\n<\/tr>\n
Credit card C<\/td>RM17,000<\/td>18%<\/td>RM850<\/td>\n<\/tr>\n
Personal loan (two-year tenure)<\/td>RM19,000<\/td>13.45%<\/td>RM1,005<\/td>\n<\/tr>\n
Total<\/td>RM65,000<\/td>16.78%<\/td>RM3,305<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nIn this scenario, you would need to pay RM3,305 every month to clear off all your debts. If you take two years to pay them off, you would pay RM11,538 in total interest.<\/p>\n

Here\u2019s what happens if you consolidate your debt under a personal loan with an interest rate of 4.99% p.a..<\/p>\n

Example: consolidated debt<\/strong>\n\n\n\n\t\n\n\t\n\t\n\t\n\t\n\t
<\/td>Existing debt<\/th>Consolidated debt under
\na new loan (two-year tenure)<\/th>\n<\/tr>\n<\/thead>\n
Total balance<\/td>RM65,000<\/td>RM65,000<\/td>\n<\/tr>\n
Interest rate (p.a.)<\/td>16.78%<\/td>4.99%<\/td>\n<\/tr>\n
Total monthly repayment<\/td>RM3,305<\/td>RM2,979<\/td>\n<\/tr>\n
Total interest payable<\/td>RM11,538<\/td>RM6,487<\/td>\n<\/tr>\n
Interest savings<\/td><\/td>RM5,051<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\nIn this scenario, consolidating your debts under a loan with a 4.99% interest rate p.a. could save you RM5,051 in interest.<\/p>\n

<\/span>How do you consolidate your debts?<\/span><\/h2>\n

Two common ways of consolidating your debt is through a personal loan or a balance transfer:<\/p>\n

Personal loan<\/h3>\n

Taking out a personal loan to consolidate your debts<\/a> can be a good choice, as most loans have flexible tenures and borrowing limits.<\/p>\n

Pros<\/p>\n