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.
Here are the list of best debt consolidation loans from top banks in Singapore
|Loan||Interest Rates||Processing fee||Tenure||Loan amount||Income requirement|
|DBS/POSB Debt Consolidation Plan||3.98% p.a.||*||Up to 8 years||Up to S$75,000 or more||S$30,000 to S$119,999|
|Citi Debt Consolidation Plan||10.5% p.a. (EIR)||*||Up to 7 years||Equivalent to the total outstanding balance + 5% allowance||S$30,000 to S$120,000|
|Standard Chartered Debt Consolidation Plan||4.5% p.a.||S$199||Up to 10 years||Equivalent to the total outstanding balance + 5% allowance||S$30,000 to S$120,000|
|HSBC Debt Consolidation Plan||4% p.a.||1% of the approved loan amount (min. of S$88)||Up to 10 years||Equivalent to the total outstanding balance + 5% allowance||S$30,000 to S$119,999|
|OCBC Debt Consolidation Plan||6% p.a.||*||From 3 years to 10 years||Equivalent to the total outstanding balance + 5% allowance||S$30,000 to S$120,000|
|Hong Leong Debt Consolidation Plan||3.5% p.a.||1.5% of the approved loan amount (min. of S$300)||Up to 10 years||Equivalent to the total outstanding balance + 5% allowance||S$30,000 to S$199,999|
|Maybank Debt Consolidation Plan||4.2% p.a.||*||Up to 10 years||Equivalent to the total outstanding balance + 5% allowance||S$30,000 to S$199,999|
|CIMB Debt Consolidation Plan||2.77% p.a.||1% of the approved loan amount||Up to 10 years||Equivalent to the total outstanding balance + 5% allowance||S$30,000 to S$120,000|
|UOB Debt Consolidation Plan||4.5%||*||Up to 5 years||Equivalent to the total outstanding balance + 5% allowance||S$30,000 to S$199,999|
|BOC Debt Consolidation Plan||*||*||Up to 10 years||*||S$30,000|
*Get in touch with the respective bank for these figures
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.
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.
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.
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.
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. Can I use my credit card after I repay the debt consolidation loan?
A. No, you cannot use your credit card after repaying the DCP loan as all the unsecured credit facilities will be closed or suspended. However, you will receive a revolving credit facility with a month’s salary to meet your daily needs.
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. I want to refinance my DCP. How much am I allowed to?
A. Before financing your DCP, you need to acquire a settlement notice from your current DC bank with a mention of the existing outstanding principal and the interest amount. The principal amount mentioned in the notice will be the refinancing loan amount.
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.