How to Consolidate Credit Card Debt Without Hurting Your Credit

Key Takeaways

How to consolidate credit card debt without hurting your credit; here’s the how-to.
Handling credit card debt can be challenging, but consolidation can help without damaging your credit.
There are three common methods on how to consolidate credit card debt without hurting your credit in Malaysia: balance transfer and debt consolidation loan.

Handling credit card debt can be daunting, but learning how to consolidate credit card debt without hurting your credit can make the process much smoother and more beneficial.

In this article, we’ll share practical tips and strategies to consolidate your credit card debt without damaging your credit.

Whether you want to streamline your payments, lower your interest rates, or regain control over your finances, we’ve got you covered.

Does Debt Consolidation Hurt Your Credit in Malaysia?

1. Short-Term Impact

a. Hard Inquiry

When you apply for debt consolidation, whether through a debt consolidation loan or balance transfer, the financial institution will typically perform a hard inquiry on your credit report.

It can cause a momentary drop in your credit score, usually between 30 to 50 points. Financial institutions conduct these inquiries to assess your creditworthiness before approving your application.

2. Long-Term Impact

a. Improved Payment History

By consolidating your debts, you combine multiple payments into a single, more manageable monthly payment.

Moreover, if you consistently make on-time payments on the new loan or credit card used for consolidation, you can drastically improve your credit score over time.

Payment history is a major factor in determining your credit score, and a record of timely payments will positively influence it.

b. Reduced Credit Utilisation Ratio

Debt consolidation in Malaysia can also help lower your overall credit utilisation ratio, which is the amount of credit you use compared to your total available credit.

A lower credit utilisation ratio generally reflects better credit management and can have a good impact on your credit score.

By reducing the balance on your existing credit accounts, you demonstrate responsible credit behaviour.

How to Consolidate Credit Card Debt Without Hurting Your Credit in Malaysia

1. Balance Transfer

A balance transfer allows you to move your debt to a new credit card with a 0% introductory interest rate for a limited period, typically 6 to 12 months.

This approach offers the significant benefit of paying the principal amount without accruing additional interest.

However, applying for a balance transfer will result in a hard inquiry by the financial institution, which can negatively affect your credit score.

Nonetheless, if you manage the transferred balance effectively and avoid using the freed-up credit limit on the old card, the impact on your credit score should be minimal.

Important considerations to keep in mind when making balance transfers include balance transfer fees, which typically range from 1 to 3% of the transferred amount and can affect your savings.

Additionally, a good credit score is necessary to qualify for the best balance transfer offers.

Before proceeding with this option, ensure that the benefits of the balance transfer outweigh the costs.

2. Debt Consolidation Loan

A debt consolidation loan involves obtaining a single loan with a potentially lower fixed interest rate than multiple credit cards.

This method simplifies your repayment process by consolidating your debts into one monthly payment with predictable interest charges.

Similar to a balance transfer, applying for a debt consolidation loan will likely result in a hard inquiry on your credit report, causing a temporary dip in your score.

However, making consistent on-time payments on the loan can positively impact your credit score in the long run.

Keep in mind, though, that loan approval for a debt consolidation loan depends on your creditworthiness and income.

Some loans might also have prepayment penalties if you choose to repay the loan early.

It’s crucial to review the terms and conditions of the loan to ensure it aligns with your financial goals.

How to Consolidate Credit Card Debt Without Hurting Your Credit if You’re an AKPK Enrolee

Enrolling in the Agensi Kaunseling dan Pengurusan Kredit (AKPK) can significantly impact your credit score and borrowing options.

Upon enrollment, your credit score will be capped at 450 or below 450. Additionally, your CCRIS and CTOS records will display a “K” mark, indicating your participation in the program.

This status generally prevents banks from accepting new loan applications from you. It is important to note that the AKPK is suitable for clients with specific financial situations, including:

Those with an income below RM5,000.
Individuals not planning to apply for new loans.
Clients aiming to settle their loans over the long term.
Those looking to reduce their monthly instalments without needing immediate cash in hand.

The reason for this is because the AKPK’s core principle is to consolidate all your loans into a single account. All loans are restructured to be repaid over ten years, with an interest rate ranging from 7% to 9%.

This significantly lowers your monthly payments compared to typical credit card requirements, which usually mandate a 5% minimum payment with an 18% interest rate.

By spreading the repayment over a longer term and reducing the interest rate, your financial burden is lightened.

Consider the example of credit card debt, which often carries an 18% interest rate and requires substantial minimum monthly payments.

Under AKPK, this interest rate is reduced, and the repayment period is extended, resulting in a lower monthly instalment.

The same applies to personal loans with higher interest rates and shorter tenures; these too will see a reduction in monthly payments under the AKPK program.

This long-term approach to debt management can provide you with a more stable financial future.

And while AKPK participation may result in a negative remark in the bank’s records and hinder your ability to obtain new loans, the program’s benefits can outweigh these drawbacks.

How to Choose the Best Debt Consolidation Option in Malaysia?

Choosing the right consolidation method is crucial to avoid negatively impacting your credit score. Here are some factors to consider:

Balance Transfer: A balance transfer is ideal for short-term debt consolidation if you have good credit and can repay the balance within the 0% interest period.
Debt Consolidation Loan: Applying for a debt consolidation loan is suitable for larger debts or if you prefer fixed payments and potentially lower interest rates than credit cards.

Why Was Your Bank Loan Application Rejected in Malaysia?

Applying for a bank loan in Malaysia can be challenging, and several factors might lead to rejection:

1. Credit Issues

CTOS score below 550: Banks consider this a high-risk indicator.
Late payments: More than two months overdue within the last six months.
Special Attention Account (SAA): Flagged accounts.
Trade references: Exceeding RM1,000.
Legal issues: Including bankruptcy.

2. Income Factors

Recent employment: Less than six months at your current job.
Income in cash: Unverifiable income.
No EPF contributions: Employment without EPF contributions.
Contract or freelance work: Considered unstable income.

3. High Debt-to-Service Ratio (DSR)

DSR over 70%: Monthly instalments exceeding 70% of net income make approval unlikely.

In situations like these, bankers cannot assist clients in securing a loan. Applying to these circumstances would not only waste time but could also worsen your financial record.

If rejected, you must wait six months before reapplying to the same bank, and each application can lower your CTOS score by 30 to 50 points.

Moreover, a CTOS score below 550 leads to immediate rejection by some banks.

How Bluebricks Can Help Consolidate Credit Card Debt Without Hurting Your Credit in Malaysia

Bluebricks is a bank loan and debt consolidation agency in Malaysia. Our comprehensive range of services ensures that you receive the best possible solution tailored to your unique financial situation.

They include:

Personal loan services
SME loan services
Mortgage loan services (to purchase a new home, refinancing and cashback purposes)
Collateral loan services

Trusted Loan Consultancy Services

Here are several factors our experts consider to ensure you get the right loan product:

The specific loan amount you require.
The urgency with which the loan amount is needed.
Whether you or your parents own a property that has been held for over ten years.
Your income level.
Your CTOS score (such as your credit score and credit history).

Why Bluebricks

1. One of the Top 10 Leading Loan Agencies in Malaysia

Our loan agents represent both individuals and businesses, offering technical financial advice to help secure loan approvals. Even if banks have previously rejected you, we provide access to a broad spectrum of loan options. Our aim is to enhance the success rate of your loan applications and minimise rejections.

2. Over 10 Years of Experience

With over a decade of experience and current banking knowledge, we excel in securing personal, business, mortgage, and collateral loans, navigating challenges like CTOS/CCRIS, and guiding clients confidently towards successful loan approvals.

3. One-Stop Solution

We provide a one-stop loan service, compiling various options from banks and credit institutions for you. Simply submit your income statement, assets, liabilities, employment record, and credit history, and we’ll handle the collateral and documentation to streamline your loan approval process.

4. Full Financing with 100% Bank Loans

We ensure 100% bank loan availability to provide full financial support, making it easier to achieve your goals and build a positive credit history.

5. No Upfront Payment Required

Our no upfront payment policy is designed to ease your financial journey, allowing you to start your investment without initial costs, reducing immediate burden and demonstrating our commitment to your satisfaction and trust.

How to Consolidate Credit Card Debt Without Hurting Your Credit – FAQs

Many people have questions about the best strategies to manage their debt. In this section, we address several questions about how to consolidate credit card debt without hurting your credit.

Can I apply for debt consolidation with low credit in Malaysia?

If you have a low credit rating, you can explore secured loans or debt management programs to consolidate your credit card debt:

Secured Loans: Secured loans require collateral, like property or savings. They are often easier to qualify for and come with lower interest rates.
Debt Management Programme: The AKPK can help borrowers negotiate for lower interest rates and create a repayment plan that fits their budget, even if they have a low credit score.

What should i consider before i consolidate my credit card debt in Malaysia?

When considering debt consolidation in Malaysia, you should:

– Review your credit score and total debt amount.
– Compare the interest rates and fees of different consolidation options.
– Assess whether you can adhere to a structured repayment plan and avoid incurring new debt.

Furthermore, seeking advice from a loan agency like Bluebricks can help you make a well-informed decision.

Will debt consolidation appear on my credit report in Malaysia?

Debt consolidation does not appear as a separate entry on your credit report. However, the accounts involved in the consolidation and any new credit inquiries will be recorded.

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