Best Debt Consolidation Plan: How Does It Work

Man thinking about debt consolidation

It isn’t easy to bear the many payments you are committed to on your credit cards. What is even much more overpowering when you would have to be indebted with other creditors to put an end to other debts.

With the overwhelming count of due dates to keep on track of, overdue payments to settle, in the end, you fail to get a hold of yourself and keep on borrowing, which leads to an endless cycle of debt. In this very case is where a debt consolidation plan comes in and can be of great help.

What is a Debt Consolidation Plan?

A debt consolidation plan (DCP) is a plan of combining all of your unsecured credit facilities such as your credit cards and personal loans from different creditors into a single loan.

Rather than you having to overwhelmingly have to keep up with all different types of investment to repay, calculating interest rates and payment dues, DCP makes it even easier for your repayment process through a single loan only.

It is indeed a useful debt management tool that permits you to merge credit card debts and personal loans that have prevailed. What is more, is that it converts it into a loan with a more affordable interest rate. The debtor will repay the loan in an automatic monthly repayment period of up to 10 years.

In short, debts consolidation plan is an instrument that helps you for an easier consolidated debt and help you get a better grip of all your debts and turn it into a more manageable commitment than your financing.

Moreover, DCP was introduced by the Association of Bank in Singapore (ABS) in 2017. The laydown of how everything works in the plan is designed explicitly for Singaporeans and Permanent Residents who struggle to keep up with a handful of high-interest unsecured debts.

With that said, DCP is solely for settling unsecured credit facilities such as credit lines, personal loans, and credit cards. There are, nonetheless, some types of unsecured credit loans that are not entitled to be combined in your DCP, which are education loans, renovation loans, joint accounts, and credit facilities for businesses.

A DCP would work best for your condition and is highly recommended for you only if you have an outstanding debt, which is more than 12 times your current monthly payment. To answer the joint inquiry, smaller in-scale debts would be best suited with a balance transfer or a personal installment.

How Does a Debt Consolidation Plan Work?

For better understanding, let us take the example of Elizabeth, who gets paid $3,000 monthly. Elizabeth currently has an outstanding balance of $40,000 amongst one personal loan and three other credit cards from credit facilities.

Outstanding Balance Interest Rate Minimum Payment
Credit Card 1
26% p.a.
Credit Card 2
25% p.a.
Credit Card 3
25.95% p.a.
Personal Instalment Loan
(24 months)
11.32% p.a.

Elizabeth has had a hard time paying the minimum payment amount of $1,275 monthly – which already takes a lot of her total income per month. At present, her outstanding balance has surpassed 12 times her monthly income.

At this point, she is committing to paying $9,336 solely for total interest-bearing annually. Due to the interest rate on her debt that makes up the balance, it may make her more than ten years to settle her debts ultimately.

In her favor, what a DCP could do is to combine all of these unsecured credit loans into one loan. What happens is that the bank that provides Elizabeth with services concerning DCP will buy out all of her outstanding balances, fees, and charges payable from her cards and loans though they are from different credit facilities. For a short amount of time, these accounts will be suspended.

Elizabeth will only have to make her repayments to the bank that provides her with services regarding DCP monthly. For instance, let us say Elizabeth gets a DCP from HSBC that she can bear for over 8 years with a flat interest rate of 3.8% p.a. (EIR from 7% p.a.). The table below would show how much she will be paying monthly in comparison to her previous payable amount.

Current Payment Debt Consolidation Plan
Total outstanding balance
(including fees and 5% allowance)
Interest rate
26% p.a.
25% p.a.
25.95% p.a.
11.32% p.a.
3.8% p.a (EIR from 7% p.a)
Total monthly repayment
Total interest payable over 1 year
Total interest payable over 8 years

Through the terms of DCP, it is evident that Elizabeth’s monthly repayments have become much more manageable. If she can consistently commit to her monthly repayments on time, she will set herself free of debt in just 8 years. Besides, she could save up over $60,000 merely on interest.

With DCP, you can choose your loan tenure within prior set limits. Mostly, credit cards in Singapore require you to pay 3% of the outstanding balance. If you cannot keep up, you will be charged with late payment fees, thus piling up your debts without your spending on anything.

Something that worth noting would be; you may be paying for higher interest as time passes. Consequently, it is advisable that you not subscribe to your DCP for a longer time than planned. Also, if you can afford it, you can make higher monthly payments.

Further, you cannot utilize your current unsecured credit facilities during or after applying for a DCP. This is because other added amounts of credits used will not be consolidated. Upon the approval of your debt consolidation plan, other existing unsecured credit facilities or yours will either be closed or suspended temporarily.

How Much Can You Borrow from a Debt Consolidation Plan?

Couple is Listening From an Agent

On the whole, you will be given a DCP amount equal to the total outstanding balance that you already owe. It also would include any fees or charges you have accumulated, which are coherent in your statement of accounts.

In some cases, debtors face an occurrence whereby their approved DCP amount will not be enough to repay the overall outstanding balance. In this instance, what one can do is to directly compensate the excluded balance to the financial establishment you borrowed from.

Additionally, you will be lent an additional allowance of 5% beyond the sum of the DCP value. It is a part of the debt consolidation plan to aid you in dealing with any accidental charges you might have to yield beginning from the time you got your DCP approval until the time you receive all of your DCP funding money.

For your information, the mentioned 5% allowance is going to be granted to the creditors that you are indebted to. It cannot be put into any of your savings or current account. Whereas, if there is a remaining unused amount of the 5% allowance, those will be refunded back to you.

In Singapore, there are a few financial institutions that furnish their DCP services with a complimentary term to help you commit to your payments in unexpected occurrences.

Furthermore, if you are unforeseeably dropped from your position and forced to quit from your job involuntarily, the insurance plan will secure the minimum payment due every month for 6 months.

Who Qualifies for a Debt Consolidation Plan in Singapore?

DBPs are only offered to Singaporeans and Permanent Residents. To meet the requirements, you must be a salaried employee with a yearly income of approximately $30,000 up toS$120,000. Also, you must have an outstanding interest-bearing balance on unsecured credit facilities equivalent to a minimum of 12 times your current income per month.

You are allowed to have only one DCP activated at once. After 3 months, you will be permitted to refinance your current DCP with another bank that participates in DCP services if you have found a more reasonable interest fee.

Bear in mind that when you have subscribed to the activated DCP, you are prohibited from applying for a new credit card or any other loans until your outstanding debt reached an amount that is less than 8 times of your monthly salary. The purpose of this condition is to help you concentrate on settling your debts.

If it seems like you are eligible for a DCP, here is another thought for you to ponder upon; will you be able to remain unbounded with debts after clearing your whole debt consolidation plan?

It is undeniable that a DCP is a compelling instrument to help you be debt-free. However, it would not be fit for everyone.

Where Can I Get a Debt Consolidation Plan in Singapore?

At present, there are a total of 14 participating financial institutions (FI) in Singapore:

  • 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

You may apply to activate your DCP from any of the financial bodies above that suit your choice, even if you have never done any commercial activities yet. However, different banks or different monetary establishments will have their terms, conditions, and rates for DCPs.

Doing research and reading up on all options for a debt consolidation plan available out, there would be highly recommended. This way, you may compare and contrast rates and terms that are most suitable for you and your current financing. Most importantly, it is to ensure that you are subscribing to a DCP in which interest rates can be afforded.

How Can I Apply for a Debt Consolidation Plan?

Applying for Debt Consolidation

You may apply for your debt consolidation plan with any institution of your choice. Be it online or visiting their corporate buildings.

Before applying for your debt consolidation plan, you should ensure that you have all of the following documents ready:

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


A debt consolidation plan is undoubtedly a beneficial device to manage several of your high-interest debts. This could be one of your best tools to clear your outstanding credit card bills and personal loans. By combining all of your monthly payments into a single loan, you can save up quite a bit by cutting up cost on the interest rates.

For all we know, it might make a whole lot of sense for somebody spiraling in debt to take up another loan to settle their existing debts. This might seem redundant and leading to stockpiling on your outstanding commitments. Nonetheless, a debt consolidation plan helps you to set your focus on resolving your debts.

If you refuse to make changes to your expenditure and spending habits, taking up a DCP might be another disaster to your loads of financial obligations.

We highly encourage you first to get to know the institutions that make fast DCP services for you. This is so that you are well-informed on your choices that are available out there. With distinct terms and conditions and interest rates, one institution may set you better than another debtor.

To get this done, it is no other than Loan Advisor. Their website lets you make a comparison between lending partners as well as their rates. They make it easier for you to decide and opt for a financing establishment that best suits you.