Debt Consolidation is a service now being offered by all prominent banks in Singapore. The plan is a refinancing programme which can help a borrower consolidate their various lines of credit across different financial institutions with one financial institution. The Debt Consolidation Plan (DCP) works only for unsecured lines of credit such as outstanding credit card balances or a personal loan. Loans that fall in certain categories such as secured loans like a renovation loan or home loan, car loan, business loans, and even an education loan cannot be consolidated under this refinancing programme.
With a tenure that can be stretched up to 8 years, a loan from DBS/POSB might help you reduce your interest expenses and become debt-free quicker than you had anticipated. Even when you’re stuck in a debt trap and can’t borrow more, your need for money usually doesn’t change drastically, provided your income and expenditure remains the same. To help you manage your daily expenses in a seamless manner, DBS offers a complimentary Visa Platinum Credit Card, with a credit limit equal to your monthly income. As long as you have outstanding balance on your DCP, you may not be granted an additional credit facility, apart from the revolving line of credit that comes with the plan. However, if the balance goes below 4 times your monthly earnings, you’re free to submit an application for a credit review.
|EIR from 7.23% p.a.||Up to 8 years||Cashback: Up to S$1,200. Valid until 30 September 2018.|
Enjoy the convenience of making payments to a single entity with this loan. With a tenure of up to 7 years and competitive interest rates, monthly repayments can become smaller and the total time needed to pay down your debt may also shrink. You’ll also receive a complimentary credit card. Partial consolidation of debt isn’t allowed in accordance with the government policy.
|As indicated on the approval letter. Default interest may apply in case of late payment.||Up to 7 years||NA|
Enjoy peace of mind and convenience by consolidating unsecured debts from different financial institutions into one. Managing your finances becomes easier with this DCP. To help you take care of your daily expenses, you’ll also get a Platinum Mastercard Credit Card for free. Interest rates on the loan start from 4.5% p.a. Singaporeans citizens and PRs, aged between 21 years and 65 years, may apply.
|EIR from 8.34% p.a.||Up to 10 years||NA|
With this loan, you can consolidate the outstanding balance from all your unsettled, unsecured lines of credit/revolving credit, and make monthly instalment payments to pay down the loan. Get an HSBC Visa Platinum Credit Card for FREE when you apply for this credit facility. It can help you better manage your daily expenses.
|EIR from 14.1% p.a.||Up to 10 years||NA|
Manage your loan repayments in a hassle-free manner by choosing this loan. As you enjoy interest which is usually lower than the prevailing interest applicable on the outstanding balance on your unsecured credit facilities, cost of repayment may also come down. You’ll also receive an OCBC Platinum Credit Card for FREE. It can help you manage your daily expenses better. The limit on the card will be equal to your monthly income. Annual fee on your card will be perpetually waived.
|EIR from 10.46% p.a.||From 3 years to 8 years||NA|
Consolidate outstanding balance on your cards, lines of credit, and other unsecured credit facilities into this single loan to enjoy convenience and lower interest rates. Flat rates of interest start from 3.5% p.a. This may also help you reduce your loan burden substantially and become debt-free much faster. If your annual income is between S$30,000 and S$120,000 or the value of your personal assets don’t exceed S$2 million, you’re eligible for this loan. Nationality and age criteria apply.
|EIR from 6.63% p.a.||Up to 10 years||NA|
In order to make unsecured debt repayments easier and faster, consolidating your debt and making payments to one single bank, can be a good option. With the Maybank DCP, you can make a single monthly instalment payment through the tenure of the loan and also enjoy competitive rates of interest, depending on the loan amount and the tenure. Note that the rate offered to you may be different from the published rate, because it would depend on the assessment of your risk profile.
|EIR from 7.64% p.a.||Up to 10 years||Cash rebate: S$388. Valid until 31 December 2018.|
Managing unsecured debts become convenient and easy with this loan. After consolidation, you’ll simply have to make one instalment payment per month. Depending on your risk profile, you may be offered a lower rate of interest than the prevailing rate on all your loans. With lower repayments, paying off the outstanding balance becomes easy. Get a FREE CIMB credit card for easy management of your daily expenses. The limit on the card will be equal to your monthly earnings.
|EIR from 7% p.a.||From 1 year to 8 years||NA|
Remembering just one payment date in a month sounds to be a much better proposition than multiple dates, right? If you agree, you may consider this loan and enjoy peace of mind and also lower interest rates. You may even expect to see a steep fall in your monthly instalments compared to when you hadn’t consolidated your unsecured credit facilities. A Visa Platinum Card will also come FREE of charge and help you manage your daily expenses.
|EIR from 9.04% p.a.||Up to 6 years||Promotional flat rates: New customer: 4.5% p.a. Validity: 31 December 2018 Existing customer: 4.99% p.a. Validity: 31 December 2018|
BOC claims to offer one of the lowest interest rates in the market on its debt consolidation plan. Pay down debts on your unsecured lines of credit by consolidating them under a single plan. Post consolidation, you’ll have to make a single monthly instalment payment. You’ll also get a complimentary BOC Family Card when you sign up to help you manage your expenses better.
|Low interest rate, as mentioned on your approval letter||Up to 10 years||NA|
The debt consolidation loans are useful for people with high interest on their debts and those who face a lot of difficulty in making their monthly instalment payments. The main benefits of consolidating debts and applying for a consolidation loan are listed below.You Can Merge all Your Debts into One
Suppose you have five different debts, a home mortgage, car loan, a personal loan and some balance in two credit cards, you need to be aware of each of these debts and pay 5 receipts each month. With debt consolidation your 5 debts will be consolidated into one, so you will need to pay only one bill each month, which will be easier to plan and you will find it easier to budget your expenses.It will Reduce the Average Interest Rate on the Total Amount
With five different debts, the higher interest rate can go up to 18% p.a.and lower rate of interest may be 3.5%. After consolidation, The consolidated debt can have an interest rate of only 3.5%, so your average rate is significantly reduced and so is overall debt and instalment payment that you have to make each month.It will Reduce your Monthly Instalment Payments
The debt consolidation loans can reduce the total amount of money that has to be paid monthly, that is, after the consolidation of debts, you will have to pay less money as a single monthly payment compared to the total amount of money that you would otherwise need to pay for separate instalments.You will be Able to Become Debt-Free within a Short Period of Time
When you consolidate your debts, you will be able to get a clear picture of the amount that you owe. Hence, you will be better equipped to plan your payments, and then also besides planning your budget in such a manner that you can pay more amounts each month. Therefore, you will be able to become debt-free within a short period of time.It will Improve your Credit Score
When you apply for such a loan, your credit history and as a result your credit score will also improve. The lenders will be aware that you are making an attempt to be debt-free and are no longer a defaulter. Besides, the regular payments that you make will be reflected in your credit history and so your credit score will improve in the process.Experts Tip:
Try to avoid applying for debt consolidation loans that ask you to pay very high monthly amounts or promise you a big reduction in your debt, because they are very risky.
To explain how a DCP works, let us take an example of a borrower who has a monthly salary of S$4,000 but has open lines of unsecured credit amounting to S$50,000. The outstanding balance can comprise of multiple outstanding dues from different credit cards and a personal loan. Let us assume that out of the S$40,000 total due, S$15,000 is from one credit card, S$7,500 each on two other credit cards and S$10,000 on a personal loan. The borrower’s calculated monthly payments will look like the table below:
|Type of Credit||Outstanding Balance||Interest Rate||Monthly Payment|
|Credit card 1||S$15,000||26% p.a.||S$455|
|Credit card 2||S$7,500||26% p.a.||S$375|
|Credit card 3||S$7,500||26% p.a.||S$375|
|Personal loan||S$10,000||7% p.a.||S$309|
Totalling up the monthly repayments of the borrower, we get S$1,514 which is almost 40% of the borrower’s monthly salary. If the borrower was to go in for a debt consolidation loan which offers him an interest of 8.5% p.a. for a tenure of 5 years, the borrower will be paying only an instalment amount of S$861.69, making repayments easier and more affordable. The figures shown are simplified for illustrative purposes and can vary depending on the interest rate offered by a bank for the DCP.
Most financial institutions that offer a debt consolidation loan will levy certain fees and charges against it. These are described below:
Like any other unsecured line of credit, a processing fee is charged. Some banks may offer a fixed minimum amount as a processing fee but depending on the total amount borrowed, the processing fee is usually 1% of the loan amount.
This fee is charged when the borrower pays off their DCP before the chosen tenure ends. The fee charged varies from institution to institution with most banks charging a certain percentage of the redemption amount as a fee.
Instalments that are not paid on time are subject to a late payment penalty. Again, this fee varies from bank to bank but is usually a fixed percentage of the overdue amount plus the current interest rate offered to the borrower.
Okay, so your debt consolidation plan (DCP) application was rejected. You’re still deep in debt. And you don’t know what to do next. Well, let’s tell you something. You’re probably not the only person in Singapore who has found himself/herself in this situation. However, you should consider doing a few things, which we have discussed in the next section, to find the probable reason(s) for the rejection. You should also decide your next course of action.
Understanding the most likely reason behind the rejection is important. This might help you when you apply again, once you’ve taken the necessary corrective measures, of course. You may also realise that DCP isn’t the best option and move onto alternatives. You may come to know that your application was rejected because the lender felt that you were trying to use your DCP loan as a temporary solution to your problem. What we mean is that if you take a DCP loan but don’t make efforts to change your spending habits, you’ll probably find yourself in a debt trap again. You’ll have to demonstrate your genuine attempts to curb unnecessary expenses and bring in greater financial discipline. If the lender doesn’t see that, they might reject your application. The other common reasons of application non-acceptance are as follows:
You Don’t Satisfy the Income and Asset Eligibility Criteria
If your annual income isn’t between S$20,000 and S$120,000, your application may be rejected. In addition, the net value of your personal assets, can’t exceed S$2 million. Of course, your lender could have slightly modified or additional requirements.
You Don’t Meet the Minimum Debt Eligibility Criteria
You can apply for a debt consolidation loan if and only if the net size of your unsecured debt exceeds 12 times your earnings in a month. If you apply for a DCP loan without meeting this criterion, your application is likely to be rejected.
Certain Types of Unsecured Loans Can’t Be Consolidated. You Were Trying to Do Just That
The government of Singapore has made a few exclusions. As per this rule, outstanding balances under joint accounts and medical/renovation/business/education loan accounts, can’t be consolidated. If you apply for a DCP loan with the purpose of consolidating debts from such existing loan accounts, your application is likely to be rejected.
You Have an Extremely Unsatisfactory Credit Score
True that you are possibly contemplating a debt programme only because you’re staring at a debt crisis. Under such a circumstance, you’ll probably not have a great credit rating or an enviable history. But, remember that by trying to bail you out, your bank is taking a risk. If your credit score suggests that there is a high probability that you’ll default, your bank might become cautious. Hence, for people with risk ratings below the DD band, getting a DCP loan may not be easy.
You Were Looking to Refinance Your DCP Loan Before Expiry of the Mandatory Wait Period
According to the government rules, you’ll have to wait for at least 3 months from the time of approval of your last DCP loan before you can apply for refinancing. If you apply for DCP refinancing before that, your application would be rejected.
Now, that you know what got your application rejected, you may be able to avoid these traps the next time you apply for a DCP loan. But, what if DCP is no longer an option. Here’s what you should do next.
Here are some of the things that you can do to reduce the weight of your debt burden:
If possible, try to talk to your creditors and see if they’re willing to offer you a way out. Some banks might offer you a one-time deal. Under the arrangement, the bank might lower the quantum of your liability. However, in return, they may expect you to clear it in one shot. Sometimes, they may even waive the interest charges. You’ll have to settle the loan principal in full. At other times, they may ask you to settle a percentage of the total outstanding and waive the remaining balance off.
However, such an arrangement will only be successful if you’re serious about the commitments you make to the lender. Whether your lender asks you to settle the reduced dues in instalments or in one go, you’ll have to comply.
This is a formal arrangement. Under this programme offered by Credit Counselling Singapore (CCS), you’ll have to make instalment payments to settle your outstanding debts. The instalment amount will be used to service all your open unsecured credit facilities. That means that the amount will be used to pay for the principal and outstanding interest charges on all your unsecured loans. Your loan servicing abilities will be taken into account. Hence, you can expect a reasonably long tenure.
Remember that it is a voluntary arrangement. It’s not a right that you can claim. It’s rather the lender’s prerogative to decide whether they want to offer you this privilege. If the lender doesn’t offer you this instalment-payment arrangement, you can’t force it to. Records of a DMP arrangement won’t appear on public records. However, it will be available with the Credit Bureau of Singapore. This means that the members including banks and other financial institutions can access it.
If you file for bankruptcy in a court, the court will ask an official assignee to determine your suitability for the Debt Repayment Scheme (DRS). Alternatively, your creditor may also bring a bankruptcy charge against you. You can apply for this scheme if and only if your cumulative debts are less than S$100,000. Upon submission of a bankruptcy application, the High Court will direct you to the Insolvency & Public Trustee’s (IPTO) Office for assessment.
If you’re found eligible, the official assignee will devise a repayment plan for you. If you’re found to be ineligible or if you fail to comply with the statutory obligations under the Bankruptcy Act, the assignee will award you a certificate of failure. In such a case, your creditors may file fresh bankruptcy applications or adopt other legal measures.
If you’re found to be eligible, the IPTO will chalk up a repayment plan for you. A meeting between you and your creditors will be set up where the details of the plan will be discussed. Once the repayment plan is approved, you’re expected to comply with the terms of the plan at all times. Once you have repaid the dues in accordance with the Bankruptcy Act, you’ll receive a Certificate of Completion from the official assignee. This will indicate successful completion of debt clearance under DRS.
We understand that you may feel helpless after seeing your DCP application get rejected. Moreover, you still have outstanding loan balances to be defrayed. For proper guidance, you could engage a professional financial advisor.
After a thorough assessment of your debt situation, asset portfolio, and income-versus-expense ratio, he/she may be able to lay down a workable plan for you. Since you might receive more personalised attention from a financial consultant, a session with him/her might work better than a free counselling session with CCS.
However, if you’re planning to opt for DMP, a session with CCS might be a better ploy. You’ll first have to attend a FREE Info Talk session. Then, you’ll be invited for a detailed counselling session, where your suitability for DMP will be examined. Remember that you can only discuss about your unsecured debts because DMP isn’t available for secured loans.
This is one of the most important steps that you should adopt. By changing your spending pattern, you may be able to allocate a higher portion of your income for servicing your debts. This tells lenders that you’re serious about settling your unsecured debts.
Some of the important reasons behind the refusal of a DCP arrangement could be a high expense-to-income ratio and balance-to-income ratio.
It’s easy to understand. If you’re overleveraged, the scope for discretionary spending can become limited. However, if you still continue to use a large portion of your income on unnecessary spends, you might heighten chances of default.
A lot of lenders may not want to take such risks. Hence, one of the first steps should be to curb the wastage of money. If you can demonstrate financial discipline, more lenders may be willing to accept your next DCP application.
Banks often view too many open credit facilities with high debts as red flags. If you’re already on the verge of overleveraging these loan accounts, you shouldn’t borrow further. This means, neither should you overdraw on these accounts nor should you open new credit lines. If you stop over-relying on credit, you’ll visibly demonstrate your willingness to mop up the existing debt and improve your financial situation. This might also reflect in your credit reports as well, thereby leading banks to have greater confidence in you.
Try these ideas. You might see a visible difference in the way a lender deals with you. It will help your creditors know that you’re serious about this problem and you mean business. It will also give you the confidence that you could become debt-free sooner than you anticipated. Look at it this way. If you don’t have a goal, you probably won’t have a plan either. And without a plan, getting out of debt may be extremely difficult. So, start acting today to change your situation.
Once you know what your goals and your options to pay your debts are, you need to know about the best option available for you. Hence, it is very important for you to understand the difference between debt consolidation and debt negotiation. Both debt consolidation and debt negotiation have their advantages and disadvantages. Compared to debt consolidation, negotiation may seem advantageous, because it only involves negotiating your debts with creditors to avoid paying part of the money you have borrowed as it will be cancelled by the lender as bad debt.
For Example : A customer applied for a personal loan from a bank to borrow S$1,000. When the bank asks the customer to return the money he tells the bank that he can give them only s$400 and requests them to forgive the remaining S$600 as he does not have any source of income of additional funds to pay the remaining amount. At times, a creditor may accept such a request and ask the customer to only pay S$400 and settle the loan as they are aware that it can cost them a lot of effort and sometimes money to recover the remaining S$600. This process of negotiating debt and paying a smaller amount than required can be termed as debt negotiation.
Although debt negotiation may seem like a dream come true, it has many associated drawbacks:
You will not have to face the above mentioned problems when you opt for consolidating your debt instead of trying to negotiate lower payment amounts with the lenders. In fact, you will also be able to salvage your future chances of getting a loan or a credit card when you opt for consolidation instead of negotiation.
If you have outstanding debts to more than one creditor you should consolidate debts. If you think you have too much debt and that there is no way you can pay off your debts, then debt negotiation is the right solution for you as it will help you to avoid going bankrupt. However, it will take you years and maybe even decades to improve your credit score again. As long as you are aware that you will be able to make an instalment payment every month, you should opt for a consolidation loan and try to pay off your debts in the long run.
If you do not feel qualified to complete the process of consolidation of your debts on your own, you can hire the services of a specialized company that can offer you with the required assistance to consolidate your debt. Such a company can also assist you in applying for a debt consolidation loan. There are times when you can easily complete the consolidation process on your own, for example, you can get a lower interest rate for transferring the balance from your multiple credit cards to a single credit card. It is called credit card balance transfer and it will allow you to enjoy paying a lower interest rate on your credit card debt. This process will also help you to consolidate your credit card debts and then make only a single payment every month. You can easily apply for the balance transfer facility on your own without seeking any professional help. But there are other situations that are more complicated and for which you may not feel qualified to consolidate your debts on your own.If you do not feel qualified to do it yourself, you can hire a debt consolidation company.
The whole reason one would have to go in for a debt consolidation loan is because their current monthly payments are getting hard to keep up with. The reason this has gotten to a point where one needs a DCP to bail them out is their spending habits. Figuring out where their money is going is the key to reducing overall expenses. Impulsive shopping sprees using a credit card, excessive dining out, excessive swipes of the card, and unnecessary purchases all contribute to how much one ends up splurging. Changing the way they spend can help break the habit of racking up large outstanding balances and will mitigate the need of a DCP in the future.
Another great way to ensure spending doesn’t go out of hand is to set a budget and stick to it. Borrowers should set aside an adequate sum to cover their core expenses and not spend on anything that isn’t absolutely necessary. Instilling a sense of financial discipline can go a long way in ensuring their line of unsecured credit never goes too high.
When a borrower takes up a DCP, they should stick to the payments and not miss it. This is because not only will they have to pay a late payment fee but the fact that if they default on their DCP, they will have no access to any other form of credit to help them out.
Borrowers should look around and compare the various DCPs available before settling on one. While a particular plan may advertise a lower rate of interest, it might also offer a lower tenure or levy higher fees and charges. Borrowers must compare and weigh the benefits and shortcomings of each plan before deciding on the right bank.
When a borrower goes in for a DCP, all other lines of credit will be closed. Borrowers will however have access to a revolving line of credit that’s bundled in with their DCP account. This line of credit will have a credit limit equal to that of the monthly salary of the borrower. Borrowers should refrain from using this or use it only for an emergency because it will add to the monthly repayment and the whole point of a DCP is to consolidate payments into one affordable payment. Adding more to the existing payment would only make it harder to repay.
Debt Consolidation Plans do not allow borrowers to consolidate the following types of loans
The Monetary Authority of Singapore (MAS) introduced the Debt Consolidation Loan as a way to help Singaporeans and Permanent Residents to bring their credit under control. But the above mentioned loans have very specific uses and as such because of the need-based nature of these loans, MAS has exempted the inclusion of such loans across the industry. No bank or financial institution will provide a DCP for consolidating the above loans.
When a borrower goes in for a DCP, their Credit Bureau record will be updated with the code for ‘Debt Consolidation’. The DCP will act as another unsecured line of credit on the borrower’s record. The credit score will show that the borrower has gone in for the consolidation plan and might bring down their score but with consistent payments on their DCP, this should even out in time. Borrowers should ensure that they make minimum payments on their credit lines till such a point where the DCP amount has been disbursed and the other lines of credit have been closed. This is to ensure that none of the lines of credit show that the borrower has missed a payment or that the line of credit is ‘past due’. If the borrower still has some outstanding amount in excess to that of the DCP amount, then they should settle this.
Q. What are the exclusions for a Debt Consolidation Plan (DCP)?
A. The DCP excludes any education loans, renovation loans, medical loans, loans granted for business purposes, and unpaid debts under joint accounts.
Q. Do I have to choose the 5% allowance on my DCP loan?
A. The 5% allowance is mandatory if you are taking a DCP loan for the very first time. This allowance takes care of any interest and fees you may incur from the date of approval to the disbursement of the borrowed amount to your FI (financial institutions).
Q. Am I allowed to partially consolidate my balances?
A. No, debt consolidation of your balances must be done in full with a participating FI.
Q. Can I make a transfer of the DCP loan amount to my current or savings account?
A. No, the DCP loan amount will be directed only to the FIs you have outstanding credit facilities with.
Q. Why do I have to take a revolving credit facility?
A. You will get a revolving credit facility automatically as it provides for a hassle-free method of payment to handle your daily requirements.
Q. Is this revolving credit facility mandatory?
A. The DCP and this facility are combined together to make one single product. But, you can choose to not use this credit facility if you do not require it.
Q. Are there any annual fees and charges attached to this facility?
A. The revolving credit facility has annual fees and charges according to the designated FI’s terms and conditions. However, the annual fee may be waived as per the discretion of the respective bank or financial institution as long as it continues to be bundled with DCP.
Q. What is the limit on the revolving credit facility? Am I allowed to request for a lower limit?
A. The maximum limit on this facility is 1x your monthly salary. No, you cannot request for a lower limit.
Q. Can I request for a higher revolving credit facility along with the DCP if my salary increases?
A. Yes, you can request for a higher limit on this facility with the DCP amount if you submit your new salary documents.
Q. Am I allowed to cancel the revolving credit facility?
A. No, you cannot cancel as it is combined with your Debt Consolidation Loan account.
Q. Am I allowed to use my unsecured credit facilities if my DCP application is approved?
A. No, your credit facilities will either be suspended or closed once your application is approved. However, you can make use of your 1x revolving credit facility.
Q. Once my DCP is approved, do I have to suspend any existing GIRO or recurring arrangement?
A. Yes, once your loan is approved, you must terminate any existing GIRO or recurring payment arrangements on your credit facilities.
Q. What will happen if my DCP amount is unable to cover all my existing credit facilities?
A. You are solely responsible for paying any outstanding amount you owe to the respective FIs in case the approved loan amount does not cover all your existing debts. Should you fail to do so, the relevant FI will carry on their regular remedial process.
Q. Do I have to notify the existing FIs to suspend my accounts?
A. No, once your DCP loan is approved, the participating FI will automatically start paying your remaining balance with the existing financial institutions and inform them to suspend your accounts.
Q. What is a DC Registry?
A. DC Registry is a centralised registry that ensures customers do not have more than one active debt consolidation account at any time. The registry also makes sure that the borrower is not on multiple DCPs with multiple financial institutions.
Q. Will there be an impact on my Credit Bureau (CB) records if I apply for DCP?
A. Since DCP is considered as an unsecured credit product, your CB record will have the DC product code. The credit data will remain in your record for three years from the DCP closure.