Debt consolidation is a strategy that many borrowers employ to manage multiple loans or debts that they are facing, especially when these loans become increasingly difficult to repay. Under a debt consolidation plan, the borrower applies for a new loan. Upon approval and disbursement, the new loan is then used to repay the outstanding amounts of all the other debts the lender has.
The borrower can now focus on paying just one loan, rather than several ones. In effect, debt consolidation combines a lender’s multiple loans into one loan, with more favourable terms. Usually the new loan has a lower monthly repayment and overall lower interest rate.
Debt consolidation has several benefits for borrowers:
Several banks and private lenders offer personal loans specifically designed for debt consolidation. These loans feature affordable interest rates that range between 3.5% to about 6%, with a flexible repayment tenor lasting up to 10 years. One example of a debt consolidation plan is the one offered by DBS Bank.
These debt consolidation loans work exactly like term loans, with a pre-determined interest rate, fixed monthly repayment and repayment tenor. Borrowers are free to negotiate favourable terms and conditions to help make their monthly repayments tenable, and therefore allow them to resolve their outstanding debts effectively.
A balance transfer lets you shift your existing credit card or loan debt to a new account with a promotional offer—often marketed as 0% interest. However, while it may seem interest-free, most of the cost is built into a one-time processing fee, so the effective interest rate (EIR) gives a more accurate picture of the true borrowing cost. For instance, the DBS Balance Transfer offers 0% interest for 6 months with a processing fee from 1.58%, resulting in an EIR of 6.56% p.a. This makes it important to look beyond headline rates when comparing offers.
Unlike term loans that require equal monthly repayments, balance transfers typically allow you to make only small minimum payments during the promotional period, with the bulk of the principal due at the end. This "balloon" repayment structure can help individuals better manage short-term cash flow, such as when waiting for a bonus or commission payout. It also offers a practical way to consolidate multiple debts into a single, lower-cost facility.
Personal loans can be an effective tool for debt consolidation by allowing borrowers to refinance high-interest debt—such as credit card balances—using a loan with a lower interest rate. This helps reduce overall interest costs and simplifies repayment with a fixed monthly instalment. However, it's important to note that many traditional personal loans come with an early repayment penalty, often around 1.5%, which can reduce the cost-saving benefit if you choose to refinance before the loan term ends.
That said, newer digital banks like GXS and Trust Bank offer personal loans with no early repayment fees, making them a flexible option for refinancing. Borrowers can take advantage of lower interest rates and switch to more cost-effective loans without incurring additional charges. This makes it easier to continuously optimise debt management and reduce financial strain over time.
Each of these various types of personal loans types, each with different financing mechanics, requirements and repayment affordability ranges can be used to consolidate your debt, whether you’re looking for better rates or trying to reduce the stress of managing multiple debts. As always, we recommend researching and comparing different offers, not only for the best deals, but also to make better, more informed financial decisions.
Lendingpot is the perfect place to begin your journey. We provide access to over 60 lending partners, each–thanks to our platform's competitive structure–competing to offer the best rates. Register today to begin your search, or contact us to learn more about how our personal loans can help you consolidate your debts.
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