Sometimes, people make poor financial choices. Emergencies and unfortunate events may strain your finances, but so can happy occasions like weddings or childbirths. 

That is why Singaporeans will borrow money from a bank or a licensed money lender at least once in their lifetime.

It is important not to let that debt get out of control, though.

But If life got in the way and your loans have snowballed, don’t despair. Debts consolidation is a good solution.

But what is debt consolidation loan really, and how does it work?

In the article below, we will discuss those issues, along with the pros and cons of debt consolidation.

What Is A Debt Consolidation Loan?

A debt consolidation loan is a loan that helps you combine all previous debt into a single one. 

If your monthly installments overwhelm you, this new plan will help because it prolongs the tenure and decreases the total cumulated interest rate.

There are several types of loans that can be used to consolidate debt:

  • Balance transfer card
  • Home equity loan
  • Debt consolidation loan

Balance transfer cards put all your loans onto your credit card with a 0% interest for six or 12 months. That means you will have to repay all your loans during this period, or your interest rate will soar.

Home equity loans allow you access to a larger sum with lower interest rates, but you might lose your home if you can’t repay this loan.

That’s why debt consolidation loans may be the best solution for this very reason: 

Their tenures are long enough but do not extend for numerous years. And depending on your income and credit rating, you can still access a convenient sum.

How It Works

Consolidating debt can be a seamless process, but you have to follow the right steps.

First is the preparation stage:

  • Calculate all your outstanding loans’ remaining balance, total installments, and interest.
  • Research the best debt consolidation plans that best fit your needs in terms of tenure and expense budget.

Then, you can apply for your loan.

  • Prepare the following documents: 
    • Your NRIC or driver’s licence
    • Computerised payslips for the past three months OR your Central Provident Fund statement/income tax notice
  • Send your application online or in person.
  • Wait for your loan application to be approved. If you opt for debt consolidation through a money lender, you will get an answer within the hour. However, Singapore banks might take one or two business days.

If your application has been approved: 

  • Set the mandatory face-to-face meeting for due diligence and identity verification at your lender’s headquarters.
  • Negotiate the best repayment plan with your money lender.

Here is a practical example of what such a repayment plan can look like:

  • First balance: $10,000; 25% annual interest rate; $500 installment
  • Second balance: $10,000; 36% annual interest rate; $1,000 installment

Therefore, your obligations are:

  • $20,000 outstanding balance
  • $1,500 monthly installment
  • 30-50% combined interest rate
  • $24,000 total loan cost

Let us assume your credit score is average. In this case, you would potentially qualify for a two-year plan to consolidate these debts with a 22% annual interest rate.

Consequently, you would have:

  • $1,037.56 new monthly installment
  • 22% new annual interest rate
  • $24,901 total loan cost

However, things would look different if you had an excellent credit score. For that same two-year tenure, you would benefit from:

  • 11% annual interest rate
  • $932.16 new monthly payment
  • $22,372 new total loan cost

Subtract this new total loan cost from the original one and notice how the saved amount in interest adds to $1,628.

When You Should Opt For Debt Consolidation

You should opt for debt consolidation if:

  • You have several unsecured loans with burdensome installments.
  • These loans’ interest rates are high.
  • The outstanding balance is too large to be paid in one lump sum.
  • You cannot qualify for a personal loan.
  • You do not want to take a secured loan that would endanger your assets.

You should not consolidate your debts with this type of loan if you have:

  • Low-interest loans
  • Enough money to repay at least one loan
  • The chance to obtain an unsecured personal loan

Pros And Cons Of A Debt Consolidation Loan

You now know what is debt consolidation loan, how it works and when you should choose one. But are there any drawbacks to it?

The answer is yes.

Let us review the advantages first:

  • You will obtain a lower interest rate for the duration of your loan.
  • Your installments may drop considerably.
  • If your credit score is good or excellent, you may even lower the total cost of your loan.
  • You will have just one monthly deadline for your loan payments instead of several to worry about.
  • It is easier to track one loan than many different ones.

The drawbacks are worth considering, too:

  • Your tenure will likely increase, meaning it will take longer to be debt-free.
  • To consolidate debt, your loans must be unsecured. Secured loans or ones taken for a specific purpose do not qualify.
  • If your credit score is average or below average, you will pay lower installments, but your total interest will be higher.
  • If your credit score or income is low, you may not qualify for an optimal debt consolidation plan.

Where To Get Debt Consolidation Loans

In Singapore, people usually get debt consolidation loans from banks or licensed money lenders. Each option has its own set of advantages and disadvantages:


  • Lower interest rates
  • Additional charges, including processing fees and early repayment charges
  • Longer tenures
  • More stringent requirements in terms of credit rating and income
  • Longer approval time

Money Lenders:

  • Higher interest rates up to 4% per month
  • No additional charges, apart from admin fee and late penalty fee
  • Shorter tenures, usually up to three years
  • More flexible eligibility requirements and terms
  • Fast approval, within the hour

So while a money lender repayment plan adds up your total interest, you have plenty of other advantages. 

Licensed money lenders in Singapore offer increased flexibility, a seamless application process, and quick approvals.

Besides, debt consolidation through money lenders can be equally convenient in terms of installments.

And remember that, because of Singapore banks’ stringent conditions, you may not even qualify for a loan with them in the first place.

But you have another alternative to consolidate your debts:

CCS’ Debt Consolidation Plan 

Credit Counselling Singapore (CCS) is a non-profit counselling agency in Singapore that strives to help people facing debt. That is why the agency has developed the government-backed Debt Consolidation Plan (DCP).

Its DCP addresses Singaporean citizens and permanent residents (PRs) with overwhelming unsecured credit facilities.

The loans they can cover through the DCP scheme are:

  • Credit cards
  • Some unsecured loans

The DCP scheme is best because an expert CCS agent will negotiate with your current and future money lenders on your behalf. 

The agent will also help you understand how to budget your expenses correctly to repay this new loan on time and avoid future bad debt.

However, not everyone can qualify. 


As we mentioned before, debt consolidation loans do not cover secured loans. DCP is no different. This scheme also cannot consolidate:

  • Joint loans 
  • Renovation loans
  • Education loans
  • Medical loans
  • Business loans

Foreigners cannot apply to the DCP, and neither can people with total loans exceeding 12 months’ worth of gross income.

Applicants must have:

  • An annual income of $30,000 to $120,000
  • Assets above $2 million

Now that you have seen what is a debt consolidation loan through CCS, you can conclude that getting a debt consolidation loan through money lenders has fewer eligibility requirements.

However, CCS’s DCP:

  • Puts an expert counsellor by your side
  • Fits better if you owe massive amounts and have a very low credit score

What Should You Choose?

Debt consolidation plans differ according to each provider. You must weigh all alternatives carefully before making a choice.

  • Bank loans are best for people with stellar credit scores and incomes.
  • CCS’s DCP is best for people with massive debt, high incomes, and valuable assets.
  • Money lenders’ debt consolidation plans fit everyone, especially those with average income and credit, fewer assets, and a need for quick financial help.

It is also essential to research various loan providers because eligibility requirements and loan terms vary. 

Besides, some licensed money lenders in Singapore do not specialise in debt consolidation loans or lack enough experience.

Others may not be customer-oriented enough, so you could expect higher interest rates.

By comparison, Credit 21 has a long-standing reputation in the Singapore loan market. We are renowned for our convenient terms, excellent customer support and low interest rates.

Contact us now or apply for a loan with us today.