Table of Contents

Why Debt Consolidation is Good in Malaysia?

Key Takeaways

  • Here are why debt consolidation is good for you in Malaysia: simplified finances, reduced monthly payments, improved credit score and lowered interest rates.
  • Debt settlement involves costly third-party negotiations, whereas debt consolidation uses a new loan for a more efficient, direct repayment plan.

Managing multiple debts can be overwhelming, which is why debt consolidation is good for those looking to streamline their finances and regain control over their financial future.

If you’re feeling the strain of keeping up with different interest rates, payment schedules, and financial institutions, debt consolidation might be the answer you’ve been searching for.

In Malaysia, debt consolidation offers a practical way to reduce monthly payments and simplify your financial obligations.

In this article, we’ll explore why debt consolidation is good for you, how it works, and when you should consider it.

Why Debt Consolidation is Good for You?

Here’s why debt consolidation is good for you:

1. Reduced Monthly Payments

    A key advantage of debt consolidation is the chance to reduce your monthly payments by extending the loan term. This can make monthly budgeting easier and relieve financial stress.

    However, it’s important to note that the total interest paid over the life of the loan could increase.

    To get a clearer picture of your new payments, using a loan consolidation calculator can provide estimates of the new monthly amounts.

    2. Improves Credit Score Over Time

    Initially, you might experience a small dip in your credit score caused by the hard inquiry from applying for a new loan.

    However, debt consolidation can lead to long-term improvements in your credit score.

    By paying off high-credit accounts, your credit utilisation rate decreases, which positively impacts your credit score.

    Additionally, making consistent, on-time payments on your consolidated loan will further improve your credit score over time.

    3. Simplifies Financial Management

    Debt consolidation simplifies financial management by combining multiple debts into a single loan, lowering the number of payments and interest rates.

    By consolidating your debts, you reduce the risk of late or missed payments and gain clearer visibility into when your debts will be fully paid off.

    4. Lower Interest Rates

    If your credit score has improved since you took out your previous loans, you may qualify for lower interest rates through debt consolidation.

    These savings can be substantial, particularly if you avoid overextending the loan term.

    Plus, you can secure the most competitive rates by shopping around and pre-qualifying with various financial institutions.

    5. Speeds Up Debt Repayment

    Debt consolidation can also speed up debt repayment by offering lower interest rates, which allows for monthly savings.

    You can use these savings to make extra payments, shortening the repayment period and reducing long-term interest costs.

    However, it’s crucial to proactively make additional payments, as debt consolidation often extends loan terms.

    Read More: How to Pay Off Debt: Effective Ways to Pay Off Debt Fast

    When Should You Consider Debt Consolidation in Malaysia?

    Debt consolidation in Malaysia can be a smart financial move in the following situations:

    1. Good Credit Benefits

      If you have a strong credit score, you might qualify for a bank loan or credit card with better terms, making consolidation more advantageous.

      2. Budget Compatibility

      If your budget can handle the new monthly payment without compromising essential expenses, consolidation can be a viable option.

      3. High-Interest Debt

      Consider consolidating your high-interest debts into one loan with a lower interest rate to save money and manage your debt more efficiently.

      4. Multiple Monthly Payments

      Simplify your finances by merging multiple monthly debt payments into one, thus reducing the risk of missed payments.

      5. Desire to Lower Payments

      If you want to reduce your monthly financial burden, consolidation can lower your overall payments and provide relief.

      6. Variable to Fixed Rate

      Convert variable-rate debts to a fixed rate through consolidation for more predictable and stable payments.

      7. Spending Habit Reformation

      Consolidation can provide a fresh start if you’re devoted to changing your spending habits and avoiding additional debt.

      Read More: What Can You Use A Personal Loan for in Malaysia

      Debt Consolidation vs Debt Settlement: What’s the Difference?

      1. Debt Settlement

        Debt settlement involves engaging a third-party company to negotiate with your financial institution to accept a lump-sum payment of less than the total outstanding balance.

        While this can reduce the amount you owe, these companies typically charge fees ranging from 15% to 30% of the total debt.

        Additionally, such arrangements can sometimes be scams, so choosing a reputable company is crucial.

        At Bluebricks, we assist clients with debt settlement by ensuring they have the funds needed to fully settle the discounted amount they negotiate with their bank.

        2. Debt Consolidation

        Debt consolidation consists of taking out a new loan to pay off the total balances of your existing debts.

        This method does not generally involve paying a third party, except for potential origination or administrative fees associated with the new loan.

        Debt consolidation requires the borrower to assess all their debts and formulate a strategy to repay them using the new loan.

        This approach aims for a more efficient and potentially less costly repayment plan.

        But when should you seek a loan agency to assist with debt consolidation? You can seek help if you’re experiencing the following:

        • Credit card usage exceeds 70%.
        • Debt Service Ratio (DSR) is over 70% of net pay.
        • CTOS score is below 550.
        • Late payments are recorded in CCRIS.
        • SAA, trade references, etc.

        Please note that at Bluebricks, we do not handle cases involving legal issues, summons, or bankruptcy.

        Read More: Personal Loan Malaysia: All You Need to Know Before Applying

        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 (Bluebricks does not handle cases involving legal issues, summons, or 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 with Debt Consolidation in Malaysia

          At Bluebricks, a bank loan and debt consolidation agency in Malaysia. Here’s how we help you achieve financial stability:

          Trusted Loan Consultancy Services

          Our loan consultancy service is tailored to recommend the most suitable loan products based on your individual circumstances. Our experts consider:

          • 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.

            Why Debt Consolidation is Good – FAQs

            To help you better understand how to manage your debt, we’ve compiled a list of frequently asked questions about why debt consolidation is good and how it can benefit you.

            Can debt consolidation save me money?

            Yes, debt consolidation can save you money, especially if you secure a lower interest rate than the average rate on your current debts. The lower the interest rate, the more you can save over time.

            For example, if your credit card charges 18% interest and you consolidate your debt with a new personal loan at 7% interest, you save 11% annually. Over seven years, this amounts to a 77% savings on the outstanding credit card balance.
             
            The same principle applies to personal loans. If you have multiple personal loans with higher interest rates and consolidate them into a single loan with a lower rate, you can significantly reduce your overall interest payments and save money over the life of the loan.

            Can I use my credit card after consolidating my debt in Malaysia?

            Yes, you can generally continue using your credit cards after debt consolidation. The process does not typically involve closing your credit card accounts.

            Will debt consolidation hurt my credit score in Malaysia?

            Consolidating your debt in Malaysia can lower your credit score. This is because the bank will perform a hard inquiry on your credit report.
             
            However, this decline is usually temporary and consistent, on time payments can improve your credit score in the long run. 

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            Wilson Wai Kit

            Senior Consultant

            With extensive banking experience, notably as a mortgage sales officer at UOB Bank, Wilson leverages his understanding of loan applications and approvals to offer financial insights and support to empower individuals to make informed decisions regarding their financial futures.

            Feel free to contact him for assistance with your financial needs!

            I want to know about bank loans
            Picture of Wilson Wai Kit

            Wilson Wai Kit

            Senior Consultant

            With extensive banking experience, notably as a mortgage sales officer at UOB Bank, Wilson leverages his understanding of loan applications and approvals to offer financial insights and support to empower individuals to make informed decisions regarding their financial futures.

            Feel free to contact him for assistance with your financial needs!

            I want to know about bank loans

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            About Bluebricks

            BlueBricks Holding is one of the top ten leading loan agency companies in Malaysia in terms of loan approval rates. As a leading loan agency company, we have extensive knowledge and experience in mortgage, personal loans, and business loans, and this enables us to help our customers to get the deal that is best suitable to them.

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