Debt consolidation is the financial strategy of combining multiple debts into a single, manageable, lower-interest payment. Unsecured debts like credit card balances and medical bills have high interest rates; consolidating them into one loan with a lower interest rate will allow you to save money and pay off your debt more quickly.

Debt consolidation can be a wise financial decision under the right circumstances — but it’s not always your best option. Consider consolidating your debt if you have:

• A large amount of debt. If you just have a small amount of debt that you can pay off in a year or less, debt consolidation is probably not worth the costs and payment plan that comes with a new loan.

• Additional plans to improve your finances. While some debts are unavoidable, like medical loans, others are the consequence of overspending or other financially risky behaviour. Before you consolidate your debt, evaluate your spending habits and develop a strategy to get your finances under control. Otherwise, you may end up with even more debt than you had before consolidating.

• A credit score high enough to qualify for a lower interest rate. If your credit score has increased since you took out your other loans, you're more likely to qualify for a debt consolidation loan with a lower interest rate than your present one. This can help you save on interest over the life of the loan.

• Monthly debt service is comfortably covered by cash flow. Only consolidate your debt if your income is enough to pay for the new monthly payment. While consolidation may lower your total monthly payment, it may not a good option if you're already unable to afford your monthly debt payments.

• Simplify your debt repayment. It might be difficult to keep track of and pay all of your debts from various lenders. When you get wrapped up in anything, it's easy to overlook about your monthly payments. This is where debt consolidation comes in to help you combine all of your loans into one lump sum. That way, you may focus on paying one payment and manage your financial commitments more efficiently.

• Could save money on interest rate. Lowering your interest rate could save you hundreds or even thousands of Ringgit. It should also make it easier to keep up with monthly payments, eliminating debt more swiftly and preserving cash flow.

• Get a fixed monthly payment. Debt consolidation loans have fixed monthly payments, which means you’ll know exactly when you’ll be debt-free. This can help motivate you while you pay down debt.

• Pay down debt quicker. If the interest on your debt consolidation loan is lower than the interest on individual loans, consider making extra payments with the money you save each month. This can help you pay off the loan faster, saving you even more money in interest in the long run. However, keep in mind that debt consolidation often results in longer loan terms—so you'll have to make a point of paying off your debt early to take advantage of this benefit.

• Additional fees may apply. Taking out a debt consolidation loan may involve additional fees like stamp duty, Takaful insurance, annual fees, and other charges. Remember that a legitimate lender would never require a borrower to make an upfront payment before receiving financing. So, if there are any charges or fees, they will be directly deducted from your loan amount, and you will not be required to pay anything beforehand.

• Could raise your interest rate. Debt consolidation might be a wise option if you qualify for a lower interest rate. However, if your credit score isn't good enough to qualify for the best rates, you can be left with a rate that's higher than the one on your current debts.

• You may pay more in interest over time. Even if your interest rates are lowered when you consolidate, you may end up paying more in interest throughout the term of the new loan. When you combine debt, the payback period begins on the first day and can last up to seven years. Although your overall monthly payment would be lower, interest will accrue over a longer period of time. To avoid this problem, plan for monthly payments that are greater than the minimum loan amount. This way, you can enjoy the benefits of a debt consolidation loan without incurring additional interest.

• Will not eliminate debts. Consolidating debt can make payments easy, but it does not address the underlying financial patterns that lead to the loans in the first place. In reality, many debtors who use debt consolidation end up in greater debt because they did not limit their spending and continued to take on debt. So, if you're thinking about debt consolidation to pay off many maxed-out credit cards, start by developing good financial habits.

Many types of debt can be consolidated, but debt consolidation works best when it involves high-interest debt, such as credit cards. The biggest benefit of debt consolidation is that you will save money since you will pay a lower interest rate.

Consider consolidating the following debts or bills:

• Credit cards
• Student loan
• Personal loan
• Payday loan
• Auto/Car loan
• Medical bills
• Retail and department store loans
• Other installment loans

If you choose debt consolidation to pay off debt, it is likely to improve your credit ratings in the long run. However, your credit score will go down a bit temporarily. This is because the consolidation loans will trigger an inquiry into your report at first. That's OK as long as you make your payments on time and don't acquire more debt.

Debt consolidation is a smart move when:

• Monthly debt payments (including rent or mortgage) do not exceed 50% of gross monthly income.
• Your credit is excellent enough to qualify for a 0% interest credit card or a low-interest debt consolidation loan.
• Your cash flow consistently covers payments toward your debt.
• If you choose a consolidation loan, you can pay it off within five years.

1. List down all of your existing debts.
Write down all of the debts that you have on hand. Choose which debts you want to consolidate. Check on the debt’s interest rate, loan tenure, and current outstanding balance. Refer to your financial provider if you are unsure of how to retrieve that information.

2. Do a simple calculation

If you add (8% + 18%), the average interest rate comes out to 13% p.a. So, debt consolidation is worth it when your personal loan’s interest rate is lower than the total average interest rate of your existing debts. In Adam’s case, the interest rate for the new loan should be lower than 13% in order for Adam to save more.

You also can use the Debt Consolidation Calculator to estimate your savings with a consolidation loan. Our debt consolidation calculator does the math for you. All you do is enter some basic info for a quick breakdown of how much you can save.

3. Apply with a trusted financial provider
If you have decided to use a personal loan to pay off your credit card debt or other loan commitments, but you don’t know which personal loan best fits you; check out Direct Lending – an online personal lending platform.

Our smart eligibility checker will provide you with the best recommendations for bank and koperasi personal loans instantly. We can assist you to search, compare and apply for the lowest interest rate personal loan. Receive funds as fast as 2 working days. As always, our service is 100% free, with no upfront payment or processing fees.

• Proof of income. This is one of the most important debt consolidation qualifications. Lenders will want to know that you have the financial means to meet the terms of loan.

• Credit history. Lenders will check your payment history and credit report.

• Financial stability. Lenders want to know that you’re a good financial risk.

However, each financiers will do have their own requirement based on your employment status, income, and your credit score. It’s important to know that each lender differs in how they approach debt consolidation qualifications.

• A Malaysian citizen aged between 20 and 58 years old
• Civil servants under Federal, State and selected Government Agencies or employees of selected GLCs
• Have a permanent job with at least 3 months of service in the government sector
• Minimum gross monthly income (including fixed allowances) of RM1,500
• High loan commitment, CCRIS/CTOS can apply (for selected koperasi loan)

Each lender, however, will have their own requirements based on your employment status, income, and credit score.

Banks and koperasi may be a good option because you can typically discuss your situation with a loan consultant. That consultant can review your finances, make recommendations, and possibly request exceptions that get your loan approved.

Koperasi, in particular, has a strong community focus, and they may be especially willing to assist you if you have low credit. Debt consolidation loan from koperasi are more lenient as compared to commercial bank loans because the repayment for koperasi loan is done through salary deduction via ANGKASA.

Read: 6 bank & koperasi loans for borrowers with negative CCRIS, CTOS, SAA & AKPK records.

The type of document will vary from financiers to financiers, depending on your employment type. To speed up your loan application process, make sure you have compiled all of the required documents. Here are general documents you need to prepare to apply a debt consolidation loan in Malaysia.

• A copy of your NRIC
• Certified payslips of the most recent 3 months
• A copy of bank statement that crediting your monthly salary
• Confirmation letter of employment (only if you're applying for bank & koperasi loan)
• And at least one (1) of these:
• Latest income tax form (Form B or Form EA/EC)
• Any other latest supporting document such as EPF statement, if required

You could receive your loan approval from as fast as 2 working days to about 2 weeks. This depends on the bank or koperasi you selected.

Most of the lenders offers a fixed interest rate, where the monthly repayment is fixed throughout the tenure of the financing irrespective of any changes in the Bank Negara’s base rate.

At Direct Lending, we offers a competitive flat interest rate and flexible repayment terms from bank and koperasi that can meet your needs with a fast and easy online loan application. Rates from as low as 2.95% p.a. or as fast as 2 working days. Click here to apply.

No, there are no upfront fees required to apply for a personal loan or to process your application in Malaysia. Direct Lending services are absolutely free to their consumers. If you are required to pay such fees, immediately contact the authorities. Learn more about loan scams in Malaysia by reading this article.

A personal loan is a type of unsecured loan. This means that you do not need to provide any collateral or have any guarantor in order to borrow money.

You can use your credit cards after consolidation if the account is still active and in great condition. Make sure to proceed with caution, particularly if overspending was the cause for your previous debts.

Direct Lending is an online personal loan marketplace, enabling borrowers to find, apply and receive financing that best suit them.

The personal loan products on Direct Lending are tailored for both private sector and civil servants in Malaysia.

For civil servant, we offer bank and koperasi loans that you can obtain from our established and reputable financing partners.

For private sector, you can apply for a safe personal loan from over 15 licensed lending partners in Malaysia to serve your financing needs.

Feel free to use our personal loan calculator to estimate your loan monthly instalment.

Our service is 100% FREE and will not require any payment from our customers at any time. Direct Lending has received over 3,000++ reviews rated 5-stars by our customers in our Google Business Page and Facebook.