Is It Worth Getting a Debt Consolidation Loan?

Is It Worth Getting a Debt Consolidation Loan?

It’s great to have so much variety when it comes to financing and loans in Singapore. Banks offer great deals, especially for mortgages, and business, or even a personal loan. The application process is way better and faster than in other countries too. However, the numerous opportunities to get financing is a double-edged sword if you find yourself unable to pay the overwhelming interest rates the bank imposed against you.

Any borrower who encounters a tremendous amount of debt need not think about bankruptcy right away — which is the liquidation of your assets, properties, and other items of value — to pay for the debt. Another option is to consolidate debt owed to your creditors into a single monthly repayment plan.

Getting a debt consolidation loan is one of the best ways to get yourself out of debt.

What is Debt Consolidation?

How Does Debt Consolidation Work?

Aside from credit card debt, huge bank interest rates for loans — which are 5-10% per missed repayments on average — are often to blame for ballooning debt. A debt consolidation loan is a loan that repays a portion of or the entire loan itself and leaves you with the same amount to pay back. The only differences are the terms and interest rates.

For example, licensed money lenders who offer debt consolidation services can pay for a considerable chunk of your outstanding debt inclusive of its penalties. Then, it will give you the same amount to pay off. However, you’ll pay a smaller amount regularly for a longer time and lower penalties. Additionally, your yearly interest rate increases can only be capped at 4%, which makes managing your debt easier than leaving it with banks.

Why Is It Your Last Resort In Recovering Credit Scores

The best way to repay your bank loans is to pay fully without missing a beat. Repaying your debt creates excellent budgeting and financial discipline. Depending on debt consolidation practices does not build excellent personal finance capabilities, which is why it’s best to leave it as a last resort.

Additionally, banks report your frequent usage of debt consolidators in settling bank debt, and this can reflect negatively on your credit scores. While it is less detrimental than your actual long-time failure to pay for your debt, the negative report still tarnishes your financial record and opportunities for better financing.

Why Are Credit Scores Important?

Credit Report

In Singapore are numerous banks that borrowers can choose to get financing for anything. However, you can face frequent rejections or the highest interest rate possible for any kind of funding because of your poor credit scores. Singapore banks upload customer financial performance through Credit Bureau Singapore (CBS), which Singaporean borrowers can use to manage their credit scores and overall financial standing too.

Borrowers can contest credit scores they believe to be erroneous. However, they need to supply the necessary documents that prove the error of their score processing, and they can do so online conveniently. Truthfully, banks consistently upload records of borrowers who have accomplished their requirements in closing debts, which allows borrowers to have an accurate representation of their credit scores after that.

Do I Need Credit Scores To Borrow Money From Money Lenders?

Fortunately, you won’t need to provide credit scores to work with money lenders. You just need to bring your proof of income and employment. The amount you can borrow depends on your income entirely, and you cannot ask them for anything above.

However, you can work with the money lender when it comes to regular repayment schedules and interest fees. Banks can provide you with higher sums than money lenders. But, they do not use credit scores as a guideline in approving your application. You can get your money straight away or within the same week too.

Money lenders offer debt consolidation services, too, as well as other organizations below.

Who Provides Excellent Debt Consolidation Services?

1. Charity Organizations

Organizations for charity allow Singaporeans with low or no income to apply for debt consolidation. If the indebted borrower qualifies with their requirements, they can receive debt consolidation services from these organizations.

Similar to money lenders, they will pay just a part of or the entire bank loan of the borrower. However, if the borrower has no income, the organization may help them find employment to supplement their income. In doing so, they can fully repay their regular debt amounts while avoiding the debt consolidation’s interest rates (if the charity will subject the borrower/debtor to it).

2. Trade Unions

Singapore trade organizations provide financial aid to borrowers who are deeply indebted but are employees and workers who are members. You can seek out trade unions relevant to your occupation and ask for financial assistance in the form of loans or debt consolidation.

If the trade union grants you a loan, you’re entitled to their debt consolidation services. If it’s the first time you’ll use their consolidation services to repay a considerable amount you borrowed from the bank and you’re a member, they’ll provide you with excellent debt consolidation services.

However, trade unions might only cover up to 60-80% of your total debt, especially if the interest rates of the amount you’ve borrowed are immense. On the other hand, trade unions have lower interest rates per year than money lenders.

3. Money Lenders

Singapore’s legally-registered money lenders do not require credit scores. Furthermore, if you have a bad credit score, money lenders do not consider them. Instead, you’ll only need to prove your income and employment. Once you’ve passed all requirements, money lenders will release your money on the same day or in less than a week.

Money lenders offer debt consolidation services, but they have higher interest rates than trade unions. On the other hand, they can pay for about 70-90% of your total debt, including interest rates. About 4% is the maximum debt consolidation interest rates money lenders can provide.

Pros of Using Debt Consolidation Services

Debt consolidation services are lifesavers. If you compare bankruptcy services to consolidation, you won’t have to liquidate your properties and take industry penalties (such as bans to take out new bank financing for a limited time). With debt consolidation, you’ll have a financial institution to pay for your entire loan, and you can pay it back slowly but surely with a better-manageable interest rate.

As we’ve explained earlier, debt consolidation is a useful service that has more pros than cons. It’s a massive advantage for borrowers who have abysmal credit scores and reputation among different banks. By proving they can address their unmanageable debts, they gain the Singapore sector’s confidence once again and give themselves the following.

1. More Financing Opportunities

Unsecured loans merit high-interest rates despite the type of loan available. However, if the borrower has a bad credit score and has an unsecured loan, the interest rates won’t skyrocket. Instead, the bank will most likely reject the borrower’s application. Borrowers with available collateral in their disposal face almost the same dilemma because the borrowers are the ones banks consider considered risky rather than their assets.

Debt consolidation allows borrowers with or without assets and with bad credit scores to recover their credit scores. Having money lenders, financial institutions, or charity organizations drive down your debt and allow you to pay for it ultimately gives you better opportunities working with banks in case you need better financial services and products in the future.

2. A Huge Lesson For Borrowers

Being in deep debt is a one-of-a-kind experience. While it isn’t pleasant, indebted borrowers pick up plenty of lessons along the way. One learning comes from regrets that they should have paid their loan on time, built a better budget, and assessed or never underestimated their financing’s significance. Another lesson is budgeting and adjusting your finances. In doing so, borrowers can immediately repay high-interest loans while maintaining their daily utilities and spending.

However, the biggest lesson for borrowers is going the full process of applying for debt consolidation services. Nobody wants to become indebted. On the other hand, debt consolidation tests a borrower’s mettle. Even if debt forgiveness services are available, they will understand that it can be challenging to use and repay — making them consider it only as their one last and final resort.

3. Ease Up On Your Budget

Debt consolidation reduces the biggest enemy of borrowers indebted to banks: spectacularly high-interest rates piling on regular repayments. If you can take off that enormous interest rate chunks when you can only pay for your minimum repayments, then you can ease up your budget for other essential things.

In Singapore, banks can charge up to an 11% interest rate on personal and business loans. If banks perceive borrowers fail to pay their financing more than 3-5 times, then they’ll likely offer customers their debt consolidation services.

However, bank debt consolidation can still be expensive. Money lenders and charity organizations offer better interest rates to help you get out of deep debt. It would be better to consult them for consolidation services for better products.

Cons Of Using Debt Consolidation

Truth be told, debt consolidation doesn’t have any drawbacks. The service is a different financial product if you compare it to loans, debt management, and bankruptcy.

Debt management plans focus on allowing a mediating party — such as your trade union or a creditor-qualified representative — to help negotiate to lower your interest rates. Debt management negotiators are still services, which means you’ll need to pay them for their services even if they fail to strike you a deal with your creditors. Lastly, debt consolidation has no guarantee your creditors will willingly lower your interest rates.

On the other hand, declaring bankruptcy allows you to have a debt repayment plan with a court-appointed executor of property. Executors will not work closely with you, but they have all rights to inform you about their decision and your compliance. They’ll be the parties to hire appraisers and auctioneers to help liquidate any property you have. Next, they will work up a plan to help you repay any remaining fees to your creditors.

Debt consolidation services do have some difficulties, such as:

1. You’ll Still Need Proof of Income

Your income is significantly substantial when it comes to debt consolidation services. Money lenders will need you to have a workable amount to repay your loan to the maximum extent they can provide, ranging from 3-6 years from the time of application.

Your trade union or charity organization will require proof of income to help you come up with a plan or negotiate with your debtors about a feasible arrangement that allows you to resolve your indenture completely, and improve your credit score and financial capability.

Therefore, if you have no source of income, it’s best to one before approaching debt consolidation companies. Your income can come from any kind of source, aside from having a job or business. However, it’s crucial to have proper documentation to serve as your proof of income once you apply for a debt consolidation service.

2. Borrowers Get Nowhere Without A Commitment To Resolve Debt

Debt free signages

Progress from indebtedness towards a better and debt-free life comes from the individual. Debt management, consolidation, and bankruptcy give everyone in Singapore a fair and capable chance to reduce their debt and ultimately eliminate it. However, it starts with one’s effort and dedication.

Therefore, if you’d like to get rid of debt, perform all due diligence required. Calculate the effects of your debt-consolidated repayments have on your current budget and income. Then, make a realistic assessment of your finances and areas of your spending that you can reduce or completely cut out from the budget realistically.

Only with your commitment and dedication can debt consolidation and other financial management services help you resolve your fiscal dilemma in the best and fastest way possible.

Getting Out Of Debt Is A Convenience For Anyone In Singapore

Get out of debt

In Singapore, no citizen and foreigner should ever have problems finding debt forgiveness services if they make a mistake in their finances. However, these services have essential requirements — both documents and personal capability — to make them a success. Thankfully, debtors have many avenues to help them finally get rid of their debt entirely that Singapore’s government and departments regulate for fairness and dependability.

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