Are you looking to take a loan to consolidate debt, but confused about which is better: debt consolidation or personal loan?

Well, in most cases, both are viable ways of borrowing money and managing your finances, but it’s important to understand the difference between them.

In this blog post, we’ll look at each option’s pros and cons so that you can make an informed decision about what’s best for your financial situation.

Read on to find out what these two options have in store for you.

What Is A Debt Consolidation Loan?

A debt consolidation loan is a personal loan that enables you to combine all your debt payments into one. Combining all your loans into one lets you reduce your monthly repayments, making it convenient for you to manage your expenses.

For instance, you have taken three loans for personal reasons. You will have to repay each with high-interest rates that can give you a hard time.

With a debt consolidation loan, you only need to make a single monthly payment, which helps lower the interest rates and keeps you unburdened.

For this reason, Singapore debt consolidation loans are considered one of the best loan choices available.

Debt Consolidation Loan Vs Personal Loan

People often fail to understand the difference between personal loans and debt consolidation loans. The misunderstanding arises because a debt consolidation loan is essentially a personal loan, but its purpose is a little different.

So, before we can answer, which is better – debt consolidation or personal loan? Let’s have a look at these in detail for a better understanding:

Debt Consolidation Loan

As explained earlier, debt consolidation loans are particularly intended to let you repay multiple debts or loans in a single monthly repayment.

Debt consolidation is ideal for people who have greater interest liabilities like credit card bills and are seeking a streamlined repayment schedule for them to stick to.

However, debt consolidation is effective only for unsecured debts or personal loans without collateral or security.

Plus, you can’t repay a debt consolidation loan before a fixed time. If you do that, you may incur penalties, which often range from a fixed sum like $75 to a proportion of your existing balance or monthly repayment.

Personal Loan

Personal loans are pretty much what their name means. They can be taken for personal expenses like a wedding, education, renovation, car maintenance, or even for small business needs.

Moreover, they can be secured or unsecured loans based on their type, total loan amount, and the loan provider.

But are personal loans the best for most Singaporeans out there?

Well, they might look like the most feasible option, but personal loans typically have greater interest rates. Most personal loans in Singapore have interest rates between 11% and 14%.

This means you’ll have bigger monthly payments as compared to other loans with lower interest rates.

Pros And Cons Of A Debt Consolidation Loan Vs Personal Loan

Now that you know about consolidation loans and personal loans, it is time to take a closer look at the pros and cons of each. The below analysis will help you easily decide: which is better – Debt Consolidation or Personal loan?


  • Debt consolidation loans offer a reduced interest rate for a single loan in comparison to the total interest rates on each of your previous unpaid debts.

Personal loans might not have the lowest interest rates, but they come with fixed interest rates, so you know how much you’ll be paying every month.

  • Consolidating several existing debts within a single loan decreases the monthly repayments, which is a great advantage.

Personal loans come with the flexibility of use as you are free to spend it where you like, unlike home, education, or bridging loans.

  • Obtaining a debt consolidation loan to repay several debts raises your credit rating in the long term.

Personal loans also help you improve your credit score, given that you make repayments on time.


  • A debt consolidation loan can help settle your financial liabilities, but it will not change the expenditure patterns that got you in trouble originally.

Also, a personal loan is another debt that may add to your overall financial burden. This can be quite risky, and you might end up getting bankrupt.

  • The majority of the debt consolidation programs have additional expenses, for instance, annual charges and services expenses.

Personal loans usually have high overall charges and fines. These charges might look negligible, but they can raise the actual rate of the loan.

  • Both of these loans can have severe consequences if you are late on your repayments, so that is a concern as well.

Now that you know the pros and cons of each loan, let’s move another confusion out of the way and see what a debt consolidation plan is and how it is different from a debt consolidation loan.

What Is A Debt Consolidation Plan?

A debt consolidation plan (DCP) is a debt refinancing scheme that allows people to combine their unsecured credit services from various lenders into one. This plan is only provided by a limited number of associated financial firms or banks.

After consolidating your liabilities using a debt consolidation plan, you may begin repaying your loans at a reduced interest rate.

However, DCP does not apply to a few categories of unsecured credit accounts like student loans, medical loans, renovation loans, loans issued on joint accounts, and business loans.

Plus, it has strict eligibility criteria. You must be earning at least $30,000 and a maximum of $120,000 per year to apply for DCP.

This is why applying for a Singapore debt consolidation loan is your best bet.

What To Consider Before Applying

A debt consolidation loan undoubtedly can benefit you in many ways. But you need to consider a few points before applying:

  • Credit Score

The first and most important thing is your credit score. An excellent credit score increases your possibility of obtaining a debt consolidation loan.

For that, you should examine your credit history to ensure everything is accurate.

  • Create A Personal Debt Consolidation Plan

It is crucial to have a clear understanding of your goals before taking any step.

For instance, if you consolidated all of your debts within one, would you be able to manage the monthly installments on a 5-year loan? How much cash would you save from that?

To answer such questions, using a debt consolidation loan calculator is a smart idea to discover how your choices would cost you.

  • Compare Different Debt Consolidation Loans

Then, you can refine your selection for lenders with loans that are suitable according to your requirements. There are several rate comparison websites available, and you may also contact certain licensed money lenders personally.

Where To Get A Debt Consolidation Loan

Although getting a debt consolidation loan from the bank is always an option, the process is quite complicated.

On the contrary, getting a debt consolidation loan from a licensed money lender has several benefits. These include:

      1. Flexibility

Money lenders are mostly flexible with repayments. A flexible repayment schedule might provide you with some relief and time to get back on track.

      2. Fast Approval

They approve loans faster than banks. This is a great advantage if you need money immediately.

      3. No Strict Eligibility Criteria

If you don’t have a high credit score as per bank requirements, getting a debt consolidation loan from a licensed money lender is an ideal option as they do not have strict qualifying conditions mostly.

So, getting a debt consolidation loan from a licensed money lender is not only beneficial but a hassle-free process too.

Merge Your Loans Easily

Getting a debt consolidation loan can be quite beneficial for you as it helps merge your loans and speed up the repayment process. By doing so, you can regain control of your finances.

However, make sure you choose the right money lender that gets you up to speed with the pros and cons of getting a debt consolidation loan.

The loan officer experts at Credit 21 are always ready to offer consultation and professional advice as per your financial condition. Get in touch and apply for a loan today.