Consolidate multiple loans and refinance: A strategic guide to financial relief
28 May 2025
12
Minutes
Katrin Straub
CEO at nextsure
Are you losing track of various instalments and high interest payments for multiple loans? Debt restructuring can turn many small burdens into a single, manageable instalment and reorganise your finances. This guide shows you in three steps how to regain control of your finances.
The topic in brief and concise terms
By consolidating multiple loans, you can reduce your monthly payment and save up to 30 percent on interest costs.
A debt restructuring leads to better oversight with only one installment and can improve your SCHUFA score in the medium term.
The cost of refinancing (prepayment penalty) for instalment loans is legally limited to a maximum of one percent of the remaining debt.
Precisely analyse the financial burden caused by multiple loans
Multiple loans often mean more than just losing track. An overdraft with twelve percent interest and a consumer loan with eight percent interest quickly create an expensive mix. With a combined debt sum of 10,000 euros, the annual interest costs can easily exceed 1,000 euros. Many underestimate that even small loans can negatively affect creditworthiness. A detailed listing of all liabilities is the first step towards financial clarity and the basis for a clear financial overview through restructuring. This analysis often reveals a savings potential of up to 30 percent of interest costs. This is how you create a solid foundation for the next steps to optimise your finances.
Implement refinancing in four practical steps
A structured process is crucial for successfully consolidating your loans. Follow these four steps to achieve your goal:
Determine total debt: List all loans with outstanding balances, interest rates, and monthly instalments. Add up the outstanding debts to find the required new loan amount, which is often around 15,000 euros.
Compare loan offers: Gather offers for a debt consolidation loan equal to the total debt. Pay attention to the annual percentage rate, which includes all costs and should typically be two to three percentage points lower than your previous contracts.
Check for early repayment penalties: Clarify with your previous banks whether a fee applies for early repayment. For instalment loans, this is legally capped at a maximum of one percent of the outstanding debt.
Finalise new loan and settle old debts: After approval for the new loan, the new bank transfers the sum directly to the old creditors or your account. Thus, all old loans are settled with a single transaction.
This process usually takes between seven and 14 working days. Thorough preparation in the first two steps is crucial for success.
Illustrate savings potential with an example calculation
The theory of debt restructuring is best understood through a concrete example. Let us assume you have two loans:
An overdraft of 3,000 euros at 13 percent interest (monthly interest charge: 32.50 euros).
An instalment loan with an outstanding balance of 7,000 euros at nine percent interest (monthly instalment: 250 euros).
Your total monthly burden is over 282 euros. You consolidate both debts into a new instalment loan of 10,000 euros with an effective annual interest rate of five percent and a term of 48 months. Your new monthly instalment is then only about 230 euros. This is a direct monthly saving of more than 50 euros. Over the entire term, you save over 2,400 euros in interest costs. A favourable instalment loan thus replaces expensive old debts, instantly creating financial flexibility.
Successfully meet the requirements for a debt consolidation loan
Banks check the same criteria for debt restructuring as they do for any other loan. A stable income is the most important prerequisite, with a permanent employment contract after the probationary period being ideal. You must also be of legal age and have your main residence in Germany. A clean SCHUFA credit report is also crucial; a score of over 95 per cent is considered good. A detailed household budget can significantly improve your chances. If you prepare a household budget correctly for the loan application, you demonstrate to the bank that you can easily manage the new, lower instalment. This reduces the risk for the bank and can lead to a quicker approval.
Sustainably enhance creditworthiness through strategic credit consolidation
Debt restructuring is more than just a short-term savings trick; it is a strategic tool for financial hygiene. Credit agencies like SCHUFA view it positively when a borrower manages only a single liability instead of many small loans. Reducing the number of creditors signals better financial organisation and can improve your SCHUFA score by up to ten points in the medium term. Our expert tip: Check your free SCHUFA data copy once a year for outdated or incorrect entries. Cleaning up this data before applying for debt restructuring can further enhance your terms. This way, you can use debt restructuring to improve your credit rating and secure more favourable long-term financing options.
Ensure optimal contract design for maximum flexibility
The new credit agreement should not only be appealing due to a low interest rate. Pay attention to flexible repayment modalities that will help you in the long term. An important clause concerns free special repayments. The ability to repay up to five percent of the loan amount once a year can reduce the term by more than twelve months. Similarly, instalment breaks of one to two months per year should be possible without additional costs. Check if the contract allows for early full repayment without high costs. A loan with a long term does lower the instalment, but it can be adjusted to your financial situation through flexible repayment options. This flexibility gives you control to become debt-free faster should your financial situation improve.
Consider special cases in debt restructuring
Not every financial situation is the same. Sometimes a negative SCHUFA entry represents a particular hurdle. Nonetheless, a debt restructuring despite negative SCHUFA is not impossible. Specialized providers assess the risk differently and often include collateral like a vehicle or property in their decision-making process. The interest rates may be two to four percentage points higher, but they are often still cheaper than those of an overdrawn overdraft facility. Even the restructuring of credit card debt, which often comes with interest rates over 15 percent, offers significant savings potential. It's important to approach the process transparently and honestly. Open communication about your financial situation increases the chances of successfully restructuring your debts. Thus, a solution can be found even in difficult cases.
Conclusion: Regain financial sovereignty through smart debt restructuring
More useful links
The Federal Statistical Office (Destatis) provides detailed tables and data on the average indebtedness of private households in Germany.
The Deutsche Bundesbank offers comprehensive statistics on interest rates and yields for consumer loans to private households, particularly for installment loans.
The Consumer Advice Centre provides information on loans and credit, offering practical tips on how you can save money when borrowing.
The Ifo Institute provides an academic study on insolvency law, highlighting relevant aspects for restructuring debt.
The DIW Berlin publishes a weekly report analyzing household over-indebtedness in the context of income expectations and lending.
The Federal Association for Debt Counselling (BAG-SB) is the central point for information and support related to debt advice.
The Federal Ministry of Justice provides access to the legal text of § 491 BGB via “Laws on the Internet,” which governs the general provisions for consumer loan contracts.
FAQ
What are the biggest advantages of consolidating my loans?
The three biggest advantages are: 1. Lower costs due to a reduced interest rate. 2. Better clarity and planning with just one monthly payment. 3. A potentially better credit rating with agencies like SCHUFA, as you have fewer creditors.
What documents do I need for a debt restructuring?
As a rule, you will need the last three pay slips, your bank statements from the last three months, a copy of your ID card, as well as the loan agreements or settlement certificates of your existing loans, showing the exact remaining balance.
What is the early repayment penalty?
The amount for installment or consumer loans is legally regulated. It may not exceed one percent of the outstanding balance to be refinanced. If the loan has a remaining term of less than one year, the fee decreases to 0.5 percent.
Will the bank handle the refinancing for me?
Many banks offer a switching service. This means that the new bank contacts your former creditors, requests the exact outstanding balance, and directly arranges the settlement for you. This significantly simplifies the process.
Can I also refinance an overdraft?
Yes, refinancing an expensive overdraft into a cheaper instalment loan makes particular sense. The interest for an overdraft is often over twelve percent, whereas an instalment loan can be available for under five percent, leading to significant savings.
What happens to my residual debt insurance?
If you repay an old loan that has credit life insurance, you can cancel this insurance. You will then receive a partial refund of the unused insurance premiums, which further reduces your overall costs.
