Clear your debt with one loan

Debt consolidation is the process of using one new loan to repay multiple existing unsecured debts, such as credit cards or personal loans.

This is often described as a debt consolidation plan because it replaces several repayments with one structured monthly repayment. In Hong Kong, this may also be referred to as a balance transfer or a consolidation loan, depending on the lender and product structure.

When applying for a debt consolidation plan, you take a new loan that is used to repay your existing unsecured debts, such as credit cards and personal loans.

After that, instead of managing multiple repayments with different due dates and interest rates, you repay one debt consolidation loan through a single monthly repayment plan.

When comparing options, focus on:

• Monthly repayment

• Repayment period

• Total cost of borrowing

• Eligibility criteria and payment conditions

If you want to estimate your monthly repayment first, use our calculator.

A debt consolidation plan may help if you want to:

• Reduce your monthly repayment

• Replace multiple high-interest debts with one loan

• Move to a more predictable repayment structure

• Simplify your finances by managing one due date instead of several

It is most useful when it reduces repayment pressure or helps you move from multiple high-cost debts into one manageable plan.

A loan that is not secured by any assets is referred to as an unsecured loan. That means in the case of failure in terms of payment, the loan cannot be paid-off against any asset or by the guarantor. Unsecured debts are short-term liabilities, usually with shorter repayment periods.

Utility bills, credit cards, medical bills, etc. are a few examples of unsecured debts. You don’t have to secure any asset or bring a guarantor while indulging in such short-term loans.

Unsecured debts possess a greater risk to the lenders, often called creditors. The risky nature of unsecured debts makes it difficult to recover the outstanding amount for lenders. In case the loan doesn’t get paid off, the creditors or lenders have to sue the defaulter for the recovery of the money they owe. In such a case, the court may order the defaulter to pay the amount owed to the lenders by using their assets.

Debt consolidation is commonly used to repay high-interest credit card balances. Instead of carrying multiple revolving balances, you move them into one loan with one repayment schedule. This can make repayment easier to manage and may lower the total cost if the new loan has a lower interest rate than your existing credit card debt.

A debt consolidation loan usually charges a 3% to 7% interest rate depending on the credit score and predetermined evaluation criteria for the loan consideration.

Take the following as an example:

• Let's say, you have $100,000 outstanding on one credit card plus $200,000 on another. You have a total of $300,000 to pay combined. One bank has a 35% interest rate and the second charges 30%. On top of the $300,000, you have to pay $195,000 in terms of interest. Needless to say, you have bigger monthly installments and twice the headache to deal with.

• In such circumstances, a debt consolidation loan helps you with lower interest rates and monthly payments. Suppose you opt for a debt consolidation loan and the bank or money lender offers you $300,000 on 3% APR to be paid off in a year. This way, you pay $309,000 in 12 months - just $9,000 above your actual debt with 12 fixed installments of $25,700 each.

When looking at it from this perspective, it is obvious to see why a debt consolidation loan might be your best option. However, before choosing a debt consolidation plan, you should compare offers carefully to see which option gives you the best balance of repayment, cost and flexibility. Should you have any enquiries relating to debt consolidation loans or finding the right lenders that give you the best options, feel free to reach out to us – we will be more than happy to lend you a helping hand.

• Debt consolidation combines multiple debts into one new loan with one monthly repayment.

• A debt consolidation plan can help simplify your finances and may reduce your total interest cost.

• Debt consolidation loans in Hong Kong vary by lender, eligibility criteria, repayment term and pricing.

• Comparing different options is important before choosing the plan that fits your situation.