The guide gives an explanation on everything you need to be familiar with regarding debt consolidation in Singapore. The guide further gives how the debt consolidation loan Singapore will help you repay multiple unsecured loan debts.
It is challenging for an individual to keep up with behind schedule payments on a particular credit card. It even gets worse when you find yourself deeper in debt with a number of creditors. A borrower will have very many payments and due dates to keep up with and the continuous constant reminder about the pending balance simply add further to the pressure. The further behind you are in the payments the larger your loan debt becomes.
Under such not so easy conditions, Singaporean debt consolidation plans will be of assistance for a borrower to getting the much-needed solution.
What A Debt Consolidation Plan Is
A debt consolidation plan is a debt management tool which was announced on the 17th January 2017 by the Association of Banks in Singapore (ABS). This plan was designed purposely for Permanent residents in Singapore and Singaporeans who were juggling a number of high-interest rate unsecured loan debts. These borrowers were also having difficulties meeting the monthly payments.
As the name suggests, a Debt Consolidation Plan allows a borrower to put together all credit cards debts they have and personal loans into one loan which comes with lower rates of interest. The new consolidated loan is afterwards to be repaid in regular monthly contributions. The debt consolidation loan Singapore, like a personal monthly instalment loan, runs for a time of up to ten years.
Debt Consolidation Plan is intended for unsecured loan facilities like personal loans, credit lines, and credit cards. On the other hand, there are specific types of unsecured loans that do not qualify to be consolidated. These loan types include renovation loans, education loans Singapore, credit services for business ventures and joint accounts.
How A Debt Consolidation Plan Works
Let’s use the case of Luke, who has a salary of S$4,000 and presently has an outstanding loan balance of S$36,000 between 3 credit cards and one personal loan all from different banking institutions.
Luke is hardly able to make the minimum repayments, which totals S$1,250 each month- this is almost half his earning for each month.
At the given rate, Luke is paying about S$8,549 in interest fees alone each year. Since the interest on the credit card loan compounds onto the outstanding balance, he is going to take a rather long time till he repays the debts completely.
A DCP will merge all the unsecured loans into one loan. In effect, the bank offering the DCP will be buying out Luke’s remaining balances and fees and other charges payable from the loan and credit cards. This is regardless whether they are from different banks. The accounts will thereof be closed or suspended temporarily.
Luke will now need to make payments to the bank offering the DCP until the debt is fully repaid. Assuming Luke is able to access a DCP from HSBC payable in over 8 years, and an interest of 10% per year. Below is how much he will be contributing each month, compared to the current commitments.
Through a DCP, Luke will only need to pay S$300 each month for his consolidated debts. When he can make monthly payments on time, he will be free from all the loans in 8 years and be able to save thousands of dollars based on the interest rates applied.
How Much You Can Borrow From The Debt Consolidation Plan
In general, banks allow an individual to borrow a Debt Consolidation Plan that is equal to the sum total of the outstanding balance they owe. This includes any fees and charges that the debt loan may have accrued as shown in the borrower’s accounts statement.
There are situations when your accepted DCP loan amount is not enough to cover all your outstanding debt balances. When this happens, you will then be responsible for the reimbursement of the pending balance directly to the institution you took the loan from.
The first Debt Consolidation Plan you get will make available an allowance of extra 5% on top of the sum total of Debt Consolidation Plan. This will contribute positively to your being able to handle incidental charges. The charges may have been incurred from the moment your Debt Consolidation Plan was authorized until the moment you repay back the Debt Consolidation Plan loan amount. A 5% allowance is provided and paid directly to the institutions you have taken loans from, and it is not deposited into your current or savings account. Should there be a sum of money left over from the allowance of 5%, the surplus amount is then credited or refunded back to you.
A number of financial institutions offer further complimentary services aimed at helping you make payments regardless of unforeseen events. For example, the Debt Consolidation Plan from Citibank provides free insurance which is intended to guarantee the repayment of the outstanding debt loan amounting to S$160,000. The insurance is applicable should the borrower suffer complete permanent disablement or an accidental death. The insurance will also come in handy in covering the minimum repayment amount owed each month for a period of up to six months. This applies in case you get retrenched or you unintentionally lose your job.
How You Can Get A Debt Consolidation Plan In Singapore
Debt consolidation loan Singapore is only made available to Singapore citizens or Permanent Residents.
In order for you to qualify for a Debt Consolidation loan Plan; you need to be salaried with a yearly take home of an amount from $30,000 to S$120,000. You also need to have outstanding loan balances which are interest- bearing on the unsecured credit services totalling a minimum 12 times the salary you earn each month.
You are also allowed to have only one active Debt Consolidation Plan at any given moment. After the first three months, you can then refinance the existing Debt Consolidation Plan by taking a second DCP from a participating financial institution. This is convenient for you when you find a financial institution that offers lower rates of interest in the market.
It is also essential to take note that when you enrol in an active Debt Consolidation Plan; you are not allowed to make an application for a new loan or a credit card. This you can access once your outstanding loan debt is lower than eight times your salary for each month. This is aimed at keeping you focused on paying up your outstanding debts.
Where You Can Obtain The Debt Consolidation Plan In Singapore
The debt consolidations plans are at present accessible at 14 financial institutions that are taking part in Singapore. These financial institutions include ANZ; CIMB; HSBC; Bank of China; Citibank; DBS; Industrial and Commercial Bank of China; Maybank; Standard Chartered, UOB, American Express and OCBC.
You are able to apply for a Debt Consolidation Plan from the financial institution of your picking. This is possible even when you do not have an account with them as yet. It is essential to take note that each of the financial institutions has its own conditions, provisions and interest rates for the Debt Consolidation Plan they offer to borrowers. It is proposed for potential borrowers to compare the plans offered before deciding on a particular financial institution of choice. This will ensure that you are signing a repayment plan and ideal rates of interest that addresses your financial position.
Before you can apply for a Debt Consolidation Plan, ensure you have the below-listed documents ready:
- You need to have the most current report on your credit status
- You will be required to have the most recent income documents
- You need to have a copy of your valid identification card (both copies of the front and back)
- You should also have the most current unsecured loan and credit card statements
- Ensure you have a confirmation letter showing all the unbilled balances of the unsecured credit card loans and the instalments repayment plans.
Above all, a debt consolidation plan is a very convenient and useful tool for handling multiple high-interest rate debts that you may owe. When you have a number of personal loans and credit card bills, a Debt Consolidation Plan will be helpful in repaying these debts off. This will leave you with only one payment for each month, therefore, saving you lots of money with the lower rates of interest charged.