How to Consolidate Credit Card Debt Without Hurting Your Credit

Key Takeaways

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:

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:

Citywide Advisory’ Loan and Consultancy Services

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We also provide tailored loan advice customised to your individual circumstances, considering a variety of factors like:


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Our goal is simple: to help you find the right loan solution, paving the way to financial stability and debt freedom.


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