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 lines. 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
Credit Card 2
Credit Card 3
Personal Instalment Loan
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)
3.8% p.a (EIR from 7% p.a)
Total monthly repayment
Total interest payable over 1 year
Total interest payable over 8 years
How Much Can You Borrow from a Debt Consolidation Plan?
Who Qualifies for a Debt Consolidation Plan in Singapore?
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
How can I Apply for a Debt Consolidation Plan?
- 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