Debt consolidation and AKPK: when one loan helps, and when to ask for free help instead

What debt consolidation is

Debt consolidation means taking one new loan to pay off several existing debts — typically credit cards, personal loans or Buy Now Pay Later plans — so that you have a single monthly payment instead of many. In Malaysia this can be a bank's balance-transfer or consolidation product, a personal loan from a bank, or a loan from a licensed moneylender.

The appeal is obvious: one due date, one amount, and often a lower monthly payment. But a lower monthly payment is not the same as a cheaper debt. The only way to know whether consolidation helps is to compare the total cost of what you have now with the total cost of the new loan. That means adding up every remaining payment on each debt, not just looking at this month's minimums, and doing the same for the new loan over its full period.

When consolidation helps

• The new loan's effective annual rate is clearly lower than the rates on the debts it replaces
• You choose a period no longer than you'd need to clear the debts anyway
• You are up to date on your payments, or only just slipping, and want to stay in control
• You close or put away the cards you've cleared, so the balances don't build up again
• One fixed payment makes it easier for you to budget and avoid late fees

Late fees and penalty interest on several cards can add up quickly. For someone juggling four or five due dates, simply having one fixed payment on payday can prevent a lot of avoidable charges — even before any saving on interest.

When it makes things worse

• The new loan is quoted as a flat rate and its effective rate is higher than your cards
• The period is stretched so far that you pay far more interest overall
• Fees or insurance are added on top of the loan
• You clear the cards, then start using them again — leaving you with the new loan and new card debt
• You're borrowing from one lender to make the payments on another

A worked comparison

Suppose you owe RM15,000 across credit cards charging 18% a year on a reducing balance. Here are three ways to clear it. The figures are calculated, not estimated.

The 12% flat loan sounds cheaper than 18% cards, but it costs about RM880 more, because its effective rate is higher. The 10% flat loan over 24 months saves about RM1,500 in interest — not because the rate is better, but because the debt is cleared a year sooner. Paying only the minimum on the cards would be far more expensive than any of these, and could take many years.

After you consolidate: making it stick

The loan is the easy part. What decides whether consolidation works is what happens over the following months. People who come out of debt for good usually change a few habits at the same time as they change the loan.

• Ask your bank to reduce the limits on the cards you've cleared, or cancel all but one
• Set a standing instruction for the new loan for the day after payday, so it's paid before anything else
• Build a small emergency fund — even RM50 a month — so the next surprise bill doesn't go on a card
• Remove saved card details from shopping apps and switch off Buy Now Pay Later
• Check your CCRIS report after three months to confirm the old balances show as settled

It also helps to tell someone you trust what you're doing. Debt is easier to manage when it isn't a secret, and a partner or family member who knows the plan can help you stick to it when a sale or a festive season makes spending tempting.

What AKPK does

Agensi Kaunseling dan Pengurusan Kredit (AKPK) was set up by Bank Negara Malaysia to help people manage debt. Its services are free and confidential.

• Financial counselling — a trained counsellor goes through your income, spending and debts with you and helps you build a realistic budget
• The Debt Management Programme — for eligible debts with banks and other financial institutions regulated by Bank Negara, AKPK can negotiate a single affordable monthly payment, often with reduced interest and a longer period
• Financial education — courses and online tools on budgeting, credit and saving

Joining the Debt Management Programme is noted on your credit record and you won't be able to take new credit while you're on it. That isn't a punishment; it's what keeps the plan working. Many people find it a relief to have one plan and one payment negotiated for them.

Signs it's time to talk to someone

• You've missed or paid late on any debt in the last three months
• More than about 60% of your take-home pay goes on debt repayments
• You only ever pay the minimum on your credit cards
• You're using one card or loan to pay another
• You're being contacted by debt collectors, or you're avoiding opening letters

None of these mean you've failed. They mean your current set-up isn't working, and the sooner you change it, the more options you have. Lenders and AKPK can do far more for someone who asks early than for someone already facing legal action.

How we approach consolidation requests

If you ask us for a loan to clear other debts, we'll list your current debts with you, calculate what they're costing, and compare that honestly with our offer. If our loan wouldn't save you money or would leave you stretched, we'll tell you — and suggest AKPK instead. We don't lend to people who are already behind on another moneylender loan, because a second loan rarely helps.

Where consolidation does make sense, we pay the money into your own account, and we'll ask you to show us the settlement letters afterwards. That protects you as much as us: it makes sure the old debts really are cleared.

What to do next

1. 1

   List every debt

   Write down each balance, monthly payment and interest rate. Your CCRIS report and card statements have most of it.

2. 2

   Work out the effective cost

   Use our calculator to compare any consolidation offer with what you're paying now.

3. 3

   Choose the right help

   If you're up to date and the numbers work, send us a quote request. If you're struggling to keep up, contact AKPK first.