Are You Confused By Debt Consolidation?

Are You Confused By Debt Consolidation?
Debt Management

Having an outstanding high-interest rate loan and overdue loan payments on one credit card can be a severe problem. It becomes more complicated, especially when you have plunged deeply into debt with some credit facilities. This dilemma may result in a burdensome tracking of your due dates, processing fee, and payment period and may cause you much stress.

It’s a fact that the more you don’t make payments when you should, the larger your loan and interest gets. If you are experiencing these circumstances, you can turn to a debt consolidation plan for help.

What is a Debt Consolidation Plan?

A debt consolidation plan, also known as DCP, refers to a scheme or process of merging your dues or debts. This plan permits you to integrate into a single loan all your credit card dues, high-interest rates, and personal loans from various institutions. Combining your loans into one makes your loan-related interest rates and dues monitoring simple and easy with a minimal processing fee.

Last 2017, the Association of Banks in Singapore (ABS) publicized the debt consolidation plans. It stated that this loan management tool is exclusive for Singaporeans and Permanent Residents like you, who have trouble with unsecured credit and making payments. A credit bureau report is essential to avoid unsecured credit payments on certain credit facilities.

These debt consolidation solutions can help you lower the effective interest rate (p.a eir) and provide you with these following benefits:

  • Might be able to save monthly income on interest rates (p.a eir)
  • Streamlined and manageable finances
  • Reduction of your payments every month including interest rate
  • Pay loan quickly with minimal processing fee

Typically, you can only obtain the DCP if you have an unsettled debt, which is 12 times higher than your monthly income including interest. For your debts with a smaller value, you can opt for a personal installment loan or balance transfer.

How Does a Debt Consolidation Plan Work?

When you fall deeply into financial obligations, one of the most unfavorable things you can encounter is managing various credit facilities that send you tons of messages for payment with an added interest rate (p.a eir). Additionally, you have many credit accounts to monitor and stacks of bills every month including interest. A debt consolidation plan is a service tool that can aid you in dealing with those debts. 

For you to understand how DCP works, let’s take an example. 

Existing LoansOutstanding Balance
Payday Loan$7000
Utility Bills$2,000
Credit Card 1$10,000
Credit Card 2$8,000

*These figures are for illustrative purposes only.

As shown in the table above, there is an example scenario of several unsecured debts, such as a payday loan, credit card loan, and even utility bills. Each of them has their respective outstanding balances that you need to make some minimum payments with interest and due dates that you should follow. These components depend on the terms and conditions of your chosen financial institution.

Given that amount, if it comes 12 times higher than your monthly salary, it is much of a struggle to pay for it. The worst thing is that you also have high-interest rates (p.a eir) of balance for each unsecured debt. You’ll be thinking now how you can manage all of those through the use of a DCP.

A debt consolidation plan combines the payday loan, credit card loans, and utility bills into one payment. The financial institution offering you the DCP would acquire those outstanding balances and charges even if they are from other banks. Then, the bank accounts are temporarily suspended or closed.

Outstanding BalanceDebt Consolidation Plan Amount
Payday Loan$7,000$27,000
Utility Bills$2,000$27,000
Credit Card 1$10,000$27,000
Credit Card 2$8,000$27,000

*These figures are for illustrative purposes only.

You can notice in the second table above that the total outstanding balance from the payday loan to the utility bills is $27,000. Since banks can give you a DCP value equivalent to the sum of your outstanding balance, you can see that the debt consolidation plan column also has a total amount of $27,000. This policy is a significant thing that you must remember in borrowing money from financial institutions.

There is a visualization in the table that the DCP makes your monitoring and tracking worry-free due to its single payment service. Aside from this, debt consolidation plans reduce your loan total payments every month and provide you with a fixed period wherein you can pay your debts. Still, these aspects vary according to the bank that gives you the plan.

Since we tackled the plan itself, you might also want to ask about how the financial institutions handle or systematize the debt consolidation plans to work with you. There are a few necessary things you need to know about how the DCP system in banks works. You can note the following:

1. Counseling

This process is the first step in your debts consolidation plan. You need to talk to an employee or staff of the service provider regarding the services they can offer and the appropriate option. They will also lay off the plan, discuss their terms and conditions, and brief you on how their organization or loan works with clients like you.

2. Paying Of Necessary Fees

You need to expect that there are necessary fees when you start with the plan. These payments may include a setup fee and a monthly fee as well as interest rates. However, these charges rely on the policies of your chosen service provider. They may vary accordingly. A processing fee is usually applied when paying using unsecured credit cards depending on the interest rate and varies on your monthly income.

3. Only For Unsecured Loan

The debt consolidation plan is only available for unsecured debts, such as personal loans, payday loans, credit card loans, and student loans. You can’t obtain this loan in the security of a collateral.

4. Keeping Of Your Accounts

You are not having a new loan or debt with a debt consolidation plan. You can still keep your existing bank accounts because they will only merge into one payment every month. This payment goes to your service provider, and they are the ones who will distribute it to your different credit facilities

5. No Adding Of Debt

There is no adding of debts because your goal is to achieve a debt-free condition with no interest rate. You need to agree that you must not get new loans when you are still paying for the old balances. In this course of action, you can ensure that you will eliminate your debts instead of stacking it up.

6. Lowering Your Payments

With a debt consolidation plan, your payment every month becomes lesser, and your debt reduces. However, you need to consider a little tradeoff. This compromise happens when there is a fee charged for the service of your provider.

How Much Can You Borrow from a Debt Consolidation Plan?

If you are considering applying for a DCP, you need to note that banks can loan you a debt consolidation plan amount that corresponds to your total outstanding balance obligation. It also includes your further accrued charges or fees, as stated in your statement of accounts.

In some scenarios, there may be a chance that your validated consolidated debt is not enough to reimburse your unpaid balances. Once this happens, you are accountable for making direct payments for your balances to the financial institutions where you borrowed the money.

There is also a supplementary 5% allowance over the entire DCP value provided by your first debt consolidation plan. This percentage allocation should help you manage with extra charges you may have been through from the approval of your DCP until the period of receiving the DCP funds. 

Moreover, keep in mind that financial institutions where you owe them money receive the additional percentage allowance directly. Since this is the guideline, it is impossible to deposit it to any of your bank or savings accounts. If there is a remaining amount from your 5% allowance, you get the opportunity to receive a refund, or they return the money to you.

Another thing that you can consider is the complementary services offered by several financial institutions. These services can help you make your payments regardless of some unexpected circumstances including the interest rate.

Who Qualifies for a Debt Consolidation Plan in Singapore?

In having plans to apply, you need to take into account that as much as you want to obtain a DCP, not every individual with debts can instinctively qualify for it. There are specific and necessary guidelines before you can opt for a consolidated debt with an interest rate. You are an eligible individual to get a DCP today if you have these qualifications: 

  • A Singapore Citizen and Permanent Resident
  • An employee earning an annual salary between $30,000 and $120,000
  • Have an outstanding interest rate with a minimum value of 12 times or higher than your income every month on unsecured credit facilities with Singapore financial institutions.

If you meet the above mentioned essential requirements, you also need to remember that you can only gain one debt consolidation plan at a time. Through another associating bank, you can refinance your current DCP if you think that you found an interest rate with a lower value. Refinancing is the method of replacing your existing owed loans with some other loan obligation under distinct terms.

Another essential takeaway that you need to be aware of is that you can’t apply for another unsecured credit card or loan once you have an active debt consolidation plan. This policy lasts until your debt obligation is eight times lesser than your salary every month. It may be beneficial for you because it permits you to set focus on eliminating your debts first.

You must know whether you are qualified or not to a DCP. When you are eligible for a debt consolidation plan, ensure that you have these documents to start with:

  • Photocopy of your NRIC (front and back)
  • Latest Credit Bureau Report
  • Latest Income Documents
  • Latest unsecured credit cards and loan statements
  • A confirmation letter that exhibits unbilled balances for your unsecured credit cards and installment plans

Where Can I Get a Debt Consolidation Plan in Singapore?

After gaining the knowledge, being familiar, and checking the needed requirements for a DCP, you need to determine the interest rate you can pay and where you can apply for it. Currently, there are 14 credit facilities and financial institutions in Singapore in which a debt consolidation plan is available. You can check these following institutions to get started with your DCP:

  • American Express International, Inc.
  • Bank of China Limited Singapore
  • CIMB Bank Berhad
  • Citibank Singapore Limited
  • DBS/POSB Bank Ltd
  • Diners Club Singapore Pte Ltd
  • HL Bank
  • HSBC Bank (Singapore) Limited
  • Industrial and Commercial Bank of China Limited
  • Standard Chartered Bank (Singapore) Limited
  • Maybank Singapore Limited
  • Oversea-Chinese Banking Corporation Limited
  • RHB Bank Berhad
  • United Overseas Bank Limited

A debt consolidation plan is possible from any of those banks mentioned despite having no past financial transactions with any of them. When you select your financial institution for a DCP, bear in mind that they have distinct policies, conditions, and rates in accordance with the credit bureau.

We recommend that you compare debt consolidation plans from any of those banks. You have to weigh your options carefully before applying. Consider the fact that you have to sign up for a payment program with suitable interest rates to your financial capabilities.

If you are looking for the best debt consolidation option then ask a professional financial advisor for help, having someone professional can guide you and you can reap the following benefits from them.

  • Puts in their expertise about available loan programs and can guide you.
  • Assists in you understanding the right options to consider including the interest rate and explain why you should go for it.
  • Offer you with services through verbal explanation or written visualization with documents.
  • They answer all your curious questions including questions about the interest rate.
  • Support you regarding decision-making that enhances your financial situation.
  • Deliver the necessary or essential service to make sure that they manage your application with professionalism and integrity.
  • Consistent in communicating with you throughout the debt consolidation process.
  • Explains the loan calculations and interest rate calculations.

The bottom line is that a debt consolidation plan is a useful resource in dealing with numerous interest rates and unpaid loans. Compare and select the most suitable debt consolidation plan for yourself and your financial and credit situation.