Debt consolidation often means taking up a loan to pay off another loan that has a much higher interest rates. So how does debt consolidation works in Malaysia ? Typically, you will be charged a 1.5% monthly interest rates if you have trouble repaying the minimum amount for a credit card. This would accumulate to a hefty 18% p.a interest rates. When you hit this situation, you may want to consider converting this high interest debt into lower interest debt with fixed repayment. This may be achievable by consolidating your credit card debt into a personal loan debt.
Pros of Debt Consolidation
As a rule of thumb, a personal loan interest rates may sit somewhere (EIR) between 13% to to 15% p.a. Converting your credit card debt which has a maximum of 18% will save you on interest. You will also be able to tremendously improve your financial situation as your large sum of outstanding debt is converted into a monthly fixed repayment. A debtor will be able to free himself from outstanding minimum amount.
Some debt consolidation program or balance transfer program also offers very low interest rates for some period of time. This will also results in savings. A debtor will often be able to merge a few of his different debts into a single debt after consolidation. This allows easier debt management
Cons of Debt Consolidation
Be very sure to check in details of the debt consolidation loans that you are taking up. Most of the time, a bank will publish a flat interest rates instead of effective interest rates. This could mean the interest rate is much higher than actually advertise. Always read the product disclosure sheet for Effective Interest Rates (EIR) and the terms and conditions of the loan.