Is Debt Consolidation Really Cheaper? Compare Your Old Debts With the New Loan
Summary
Consolidation is cheaper only when the total payments still left on your old debts are larger than the total payments on the new loan, every fee on both sides included. Three debts with a RM 7,700 settlement and RM 8,500 of payments left carry RM 800 of remaining credit cost; the same RM 7,700 over 12 months at RM 695 costs RM 640 and saves RM 160, while over 36 months at RM 268 it costs RM 1,948 and leaves you RM 1,148 worse off.
Consolidation is cheaper only when the total payments still left on your old debts are larger than the total payments on the new loan, with every fee on both sides counted. Suppose three debts can be settled today for RM 7,700 and have RM 8,500 of payments still to run: the credit you have left to pay for is RM 800. A new loan of RM 7,700 over 12 months at RM 695 repays RM 8,340, costs RM 640, and saves you RM 160. The same RM 7,700 over 36 months at RM 268 repays RM 9,648, costs RM 1,948, and leaves you RM 1,148 worse off than doing nothing — even though the monthly payment fell by RM 582.
What are you actually comparing?
Not interest rates, and not one instalment against another. You are comparing two totals: the money that leaves your account if you keep paying the debts you have, and the money that leaves it if you replace them with one loan.
Start from the fact that keeps the exercise honest: consolidation does not reduce what you owe. The same principal moves to a new agreement with a new term and a new price, so the only thing that can change in your favour is the cost of credit.
How do you price staying where you are?
Two columns per debt: the payments still to come, and what it would take to settle today. Ask each lender for the second figure in writing, because a settlement amount is not always the statement balance.
- Credit card on a repayment plan: RM 220 a month, 10 left. RM 220 × 10 = RM 2,200; settlement RM 2,000.
- Small personal loan: RM 180 a month, 15 left. RM 180 × 15 = RM 2,700; settlement RM 2,400.
- Device instalment plan: RM 450 a month, 8 left. RM 450 × 8 = RM 3,600; settlement RM 3,300.
Add them up. RM 8,500 of payments remain against a RM 7,700 settlement, so the credit you have left to pay for is RM 8,500 − RM 7,700 = RM 800, on a combined monthly commitment of RM 850. Those three numbers are your current position.
How do you price the new loan?
Borrow the settlement total, not the statement total, and multiply out. At RM 695 a month for 12 months: RM 695 × 12 = RM 8,340 repaid, so RM 8,340 − RM 7,700 = RM 640 of credit cost. Against the RM 800 you were going to pay anyway that is RM 160 cheaper, with the monthly commitment falling to RM 695, a relief of RM 155. Cheaper and lighter at once: consolidation working.
Then add the fees, because they decide small cases. If the old lenders charge RM 170 in early settlement fees between them, your outflow becomes RM 8,340 + RM 170 = RM 8,510 against the RM 8,500 of staying put. A RM 160 saving becomes a RM 10 loss on fees alone. Rehearsing this is what a calculator is for; the independent, unofficial (TUNAI PANTAS) Loan App SIM listing on this site describes a loan simulation, calculator and guide that works only on numbers you type in. It is not a lender, and its output is an estimate for planning.
Where does consolidation turn out more expensive?
When the new term runs past the point where your old debts would have ended. Take the same RM 7,700 at the same pricing, stretched:
- 12 months at RM 695: RM 8,340 repaid, cost RM 640, so RM 160 better off. Monthly relief RM 155.
- 24 months at RM 375: RM 9,000 repaid, cost RM 1,300, so RM 500 worse off. Monthly relief RM 475.
- 36 months at RM 268: RM 9,648 repaid, cost RM 1,948, so RM 1,148 worse off. Monthly relief RM 582.
Read the third line carefully, because it is the one most people sign. RM 582 a month of breathing room is real, and so is RM 1,148 of extra money paid. The mistake is not choosing the long term; it is calling it a saving when it is a purchase.
Where is the break-even term?
You can calculate it exactly, in one division. Work out what the new loan costs per month of term, then see how many of those months your old credit cost will buy:
- New loan cost per month of term: RM 640 ÷ 12 = RM 53.33.
- Break-even term: RM 800 ÷ RM 53.33 = 15 months.
Under 15 months consolidation costs less than staying; over it, more. That matches the ladder, where 12 months wins and 24 loses. Note that break-even is longer than the average remaining life of the old debts, about 10.7 months here, because those debts were priced above the new loan. Run the division on your own quote, because break-even moves with your pricing.
Frequently asked questions
Does consolidation reduce what I owe?
No. It replaces several agreements with one and can change the price of the credit, but the principal travels with you. A plan that promises to reduce the debt itself is describing something else.
Is a lower monthly payment a saving?
No, it is relief, and relief has a price. Above, the smallest instalment carried the largest total. Price it: divide the extra cost by the monthly reduction it buys.
Which figure do I use for an old debt, the statement balance or the settlement amount?
The settlement amount, in writing, with the date it is valid to. It can exceed the statement balance once charges to date are added, and a shortfall means an account you meant to close stays open.
Can an app decide this for me?
No. An app only runs arithmetic on what you type in, and the result is an estimate for planning. The decision depends on your income and the terms you are offered in writing. Never enter an identity card number, a bank account number, card details, a password or a one-time PIN into any third-party app or website.
Three figures, one comparison: the settlement total of your old debts, the payments still left on them, and the total payments on the new loan. If the second beats the third once every fee is counted, consolidation pays; if not, it does not, however small the instalment looks. For consumer information on borrowing in Malaysia, see Bank Negara Malaysia. To rehearse the arithmetic, the independent, unofficial app on Google Play is a loan simulation, calculator and guide with no account, no login and no personal data. It is not an official representative of TunaiPantas and is not affiliated, endorsed or related to TunaiPantas or to any bank or government body, and is not a lender and not an intermediary. It does not offer loans and cannot be used to apply for loans, does not process applications, disburse money, check application status or access any accounts. All figures are estimates only for planning; always verify the actual terms directly with TunaiPantas. Not financial advice.
