If you have a lot of debts that you just can’t repay no matter how hard you try, a debt consolidation plan money lender may be an option that is worth exploring.
What are consolidated debts? How do consolidated debt loans work? Is a debt consolidation plan worth it? Where can you get a debt consolidation plan money lender?
This blog will address these and other questions concerning loans for consolidating debt in Singapore.
Let’s start with what is a debt consolidation plan money lender.
What Is A Debt Consolidation Plan?
A debt consolidation plan (DCP) is a structured programme that helps individuals with multiple loans to combine all their loans into one single loan, often at a lower interest rate.
This means you won’t be required to pay your monthly repayment installments to different financial institutions. Instead, you make the total payment of the month to one financial institution.
DCPs are offered by banks and other financial institutions. You can get debt consolidation loans from licensed money lenders, but the criteria are different.
How Does It Work?
A debt consolidation plan can be a big help to those with debts with different financial institutions. Without a doubt, it is easy to miss a payment or two when you have so many debts.
With a DCP in place, you will only be required to make a lump sum payment to one institution of your choice. This makes it easier to manage all your loan repayments.
When your personal loans and credit card bills snowball to become many times higher than your salary, then consolidating debt is the best option for you.
But there are steps to be followed and various criteria that apply.
You’ll first need to find a lender that is willing to give you a debt consolidation loan based on the state of your finances and the amount you owe.
Next, you’ll need to provide some information about your debts, including the various outstanding balances and interest rates. The debt consolidation plan money lender will then use this information to calculate how much money you’ll need to borrow in order to pay off all your debts.
What A Debt Consolidation Plan Can Be Used For
A DCP can be used for unsecured loans such as:
- Personal loans
- Credit lines
- Credit cards
A DCP can:
- Lower your monthly payments
- Reduce your loan’s interest rates and other charges
- Improve your credit score
- Simplify your bill-paying process
Never use a loan that yields interest to pay off a loan that will not accrue interest. Debt consolidation plans can help you pay the bills without having the debts accumulate interest.
As you can refinance secured loans involving property and cars, they don’t qualify for this type of plan.
What It Excludes
Apart from secured loans, some types of unsecured loans are also excluded from a DCP, such as:
- Renovation loans
- Business loans
- Medical loans
- Loans from joint accounts
- Education loan
- Credit facilities offered for business purposes
You should also note that debt consolidation only works depending on some factors. These include whether you stick to your budget, financial situation, and plan to keep track of your debts.
This brings us to the pros and cons of a debt consolidation plan.
Advantages Of A Debt Consolidation Plan
By merging your multiple debt repayments into one, a debt consolidation plan makes it a lot easier to manage your debts.
The second advantage is DCP saves you time. Instead of making multiple payments to various lenders, you now have a single financial institution to make your payment to.
Thirdly, if you were to make payments to different financial institutions, the chances of paying high-interest rates are inevitable. A debt consolidation plan money lender can go a long way in reducing your interest rate significantly.
Lastly, a DCP is likely to improve your credit score thanks to the reduction of the credit utilisation rate. This will be reflected in your credit report. Banks and licensed money lenders will look at this before they approve your loan application.
Making timely repayments can also help in improving your credit score.
Disadvantages Of A Debt Consolidation Plan
A debt consolidation plan may attract additional costs in the form of origination fees. Repayment transfer charges, annual fees, and closing costs may also apply.
Although it may seem a smart idea, DCP does not solve underlying problems. Whether you have successfully applied for a debt consolidation plan or not, the financial problems that led to you owing various financial institutions will remain unchanged until you take the right action.
In fact, some borrowers who have seen the benefits of a debt consolidation plan have plunged into deeper financial problems than before their DCPs were approved. Due to complacency, they got into more debts than they had before a DCP.
So don’t think you now owe only one lender and can spend the rest of the money. If you’re not careful, you find yourself stuck with even more debt.
What To Consider Before Applying
Before you decide to apply for a debt consolidation plan, remember these four points:
There Will Be An Additional 5% Charged
Once your DCP has been approved, an additional 5% will be imposed on you. This additional amount will help pay for any extra charges and late payment fees that may arise.
The Approved DCP Amount May Not Be Equal to Your Loan Amount
Depending on the financial institution you are dealing with, the approved debt consolidation plan amount may be less or equal to the amount you owe financial institutions.
In most cases, the financial institution you approach will do its best to assist you in clearing your loans.
However, many things are involved, such as your current situation and of course, your monthly gross income. These factors may make it hard for the approved DCP and your impending debt to tally.
Your Credit Line And Unsecured Credit Facilities Will Cease to Function
You will not be allowed to apply for any loan or credit card or use any of your unsecured credit facilities after your debt consolidation plan is approved.
That does not mean you will not get to access any money because the financial institution will give you a revolving debt facility, which you’ll use to carry out your routine financial transactions.
You May Not Be Able To Approach Another Financial Institution
You can decide to deal with a different institution for your debt consolidation plan. But you have to wait at least 90 days to do this.
In addition, you’ll need permission from the first financial institution with which you signed the DCP.
Penalty charges or early termination fees may also apply. Ensure you consult your financial expert before making any decisions.
Who Can Apply For A DCP
To qualify for a debt consolidation plan, you must:
- Be a Singaporean or a permanent resident (PR)
- Have an annual income ranging from $20,000 to $120,000
- Have less than $2 million of net personal assets
- Have outstanding debts for unsecured credit facilities that is more than 12 times your monthly income
If you meet the requirements, you can apply for a debt consolidation plan by preparing these documents:
- Copy of your NRIC
- Credit Bureau Report, or your credit history report
- Latest credit statements for all credit cards and unsecured credit loans
- Latest income documents
- Confirmation bills indicating the unbilled principal balance for accepted installment loans (if any)
You can get a debt consolidation plan from these 14 financial institutions:
- 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
Once your application is approved, you’ll only have to make one monthly payment to the debt consolidation plan money lender, instead of making multiple payments to different creditors.
Alternatives To A DCP
If you think that a debt consolidation plan money lender is not a good idea, here are two options to consider:
Debt consolidation loan: If you can’t qualify for a debt consolidation plan, try applying for a debt consolidation loan from a licensed money lender. The barriers to entry are much lower.
Balance transfer: This helps consolidate payments for a variety of credit cards. It is usually a short-time option that allows you to take a loan of up to four times your monthly salary.
Line of credit: This is one of the best DCP options because you are charged interest only on the amount you withdraw. Line of credit caters to financial emergencies and does not have fixed tenures.
Decide If You Need A Debt Consolidation Plan Money Lender
A debt consolidation plan money lender is a viable option for you if you are struggling to repay your monthly installments. The main thing about a DCP is it will help you pay less interest, manage your debts better, and could aid in boosting your credit score.
Do not struggle alone when we can help you. At Credit 21, we are determined to help you achieve your financial freedom.
We are a trusted licensed money lender in Singapore, offering some of the most affordable interest rates and fees. We are located at 10 Anson Road #01-07 International Plaza, a three-minute walk from Tanjong Pagar MRT station.
Give us a call now or apply for a loan today.
