6 Myths About Debt Consolidation That You May Still Believe

6 Myths About Debt Consolidation That You May Still Believe

Is your total debt more than 12 times your monthly salary? While you can take comfort in knowing that there are other people in your situation, it’s still not practical to have more financial liabilities than assets. According to the Monetary Authority of Singapore, you are “highly indebted” when you owe money that costs more than your annual income.


Debt consolidation plans (DCPs) would be a good solution for those who are under this category, but most people have false assumptions about this type of personal loan. There are banks and licensed moneylenders that can help with relieving debt burden. If you have trouble with bank applications, you should consider a loan consolidation offer from reputable moneylenders. However, you might have asked, “How do I know whether a moneylender is licensed or not?” The Ministry of Law has a full list of licensed lending companies in Singapore. You can verify a company’s legitimacy by checking the ministry’s website.

Debt consolidation

Alternatively, you can use our loan comparison tool and other online resources to know the best bank or moneylender for your situation. Before doing so, you must understand how debt consolidation works by knowing the common misconceptions.

1. Consolidating Debt Damages Your Credit Score

Loan consolidation simply works by eliminating all the outstanding balances in your loans through a lump sum payment, which comes from a single loan with a huge amount. Most people think that taking out a new loan will further reduce their credit scores. This won’t happen if you won’t miss a monthly repayment for the required amount. The same principle applies to credit cards and other personal loans: missed payments affect your credit rating.

Debt Consolidation

The Credit Bureau of Singapore and DP Credit Bureau, which are the two office credit bureaus in Singapore, will update your credit report after you take out a DCP loan. The average interest rates of some DCP loan products are also much lower, although rates will vary based on your credit score.

2. Bankruptcy and Debt Consolidation Are the Same

Bankruptcy happens when you owe more than $15,000 in debt without any means of repaying the money. This doesn’t necessarily mean that you are bankrupt when your total debt is worth more than the mentioned amount. People who file bankruptcy are often in very tough financial situations. On the contrary, some people who can still afford to pay multiple loans choose to apply for a DCP loan. It’s easier to keep track of one due date instead of several deadlines, which are often the cause of overlooked payments


For further clarification, you won’t be considered bankrupt unless a court says so. Bankruptcy filings also restrict people to leave Singapore and hold public office. They can only become a company director and file court lawsuits against anyone with a prior court or OA approval.


DCP loans don’t come without any disadvantages. For example, your existing credit facilities will either be closed or suspended once you decide to apply for loan consolidation. If you really need a credit card, some banks like HSBC offer one with an annual fee waiver that you can use while you repay the loan. You can’t cancel the card if the DCP is active, but you can also choose not to use it unless necessary.

3. Loan Consolidation Significantly Cuts Your Debt

By saving money, we don’t mean cutting your monthly debt repayments in half after taking out a DCP loan. However, a lower interest rate means that you actually save yourself from paying more money during the loan tenure. Let’s say you owe $60,000 from three credit cards and one personal loan. You see a DCP loan offer worth $63,000 payable in four years with an interest of 7.5% per annum. The total amount includes a 5% allowance to cover ancillary expenses such as administrative and processing fees.


You would save almost $24,000 on interest payments if you choose this DCP loan offer. Your monthly payment would cost around $1,500 per month, compared to almost $2,000 per month for four years if you decide to pay off the cards and loan separately. Take note that the average credit card interest ranges between 25% and 27%, while unsecured personal loans usually carry an interest rate from 9% to 11%.

4. Interest Rates Are Always Lower 

If you have maintained a high credit score for several years, then this “myth” may be applicable to you. Unfortunately, borrowers with a score below 600 may not qualify for low interest rates. Still, a loan consolidation plan remains better than paying at least 25% interest per year on a credit card.

5. DCP Takes Too Much Time for Borrowers 

As digital technologies continue to evolve, so do bank policies and moneylending practices in Singapore. Online channels allow you to upload documents and submit forms. If you apply with a licensed money lender, you may even receive the loan proceeds after an hour! Some banks have also streamlined their loan disbursement from a few days to as fast as 24 hours.

6. DCP Borrowers Earn a Lot

Your income is crucial for a DCP application, but you don’t need to earn six figures to qualify for one. In fact, a high income may even restrict you from applying for a DCP loan. According to The Association of Banks in Singapore, you should earn at least $20,000 per year to be eligible. Singaporeans or permanent residents shouldn’t earn more than $120,000 per year, and their net personal assets should be less than $2 million. Remember that your total debt should be 12 times your monthly income to qualify for DCPs.


Keep in mind that applying for a DCP loan won’t put you deeper in debt. Lack of information causes you to miss out on the benefits of debt consolidation. Depending on your income and credit score, you may find it difficult to apply with banks. In this case, licensed moneylenders will be your only option. Contact us today to learn more about how to choose the best licensed moneylender in Singapore.

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