Are you struggling with one too many debts? While taking yet another loan is probably not a wise idea, some kinds of loans can help people who are mired in debt.
Refinancing your loans with a debt consolidation plan or loan can be a good idea, as it usually reduces the interest rates you will have to pay.
On top of that, applying for one at an approved debt consolidation loan company in Singapore will streamline your debts into one, easing the payment process.
What is a debt consolidation plan?
A debt consolidation plan is a refinancing programme regulated by the Monetary Authority of Singapore (MAS) where you take out a single loan to pay off multiple debts, such as credit cards, personal loans, or other outstanding debts under a single financial institution.
This allows you to simplify your debt payments by making a single monthly payment towards the new loan, instead of multiple payments towards various debts. The new loan is often at a lower interest rate, which can help reduce the overall interest you pay and potentially save you money in the long run.
Debt consolidation plans can be useful for individuals who are struggling with high-interest debts and want to simplify their payments and pay off their debts faster.
Which are the participating financial institutions?
Participating financial institutions (FIs) encompass banks and credit card providers that offer unsecured credit facilities. Currently, there are 14 participants, subject to potential changes:
- American Express International, Inc.
- Bank of China Limited Singapore
- CIMB Bank Berhad
- Citibank Singapore Limited
- DBS 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
Please note that new financial institutions may be added or substituted periodically.
Benefits of debt consolidation plans
Debt consolidation plans offer several benefits, including the opportunity to obtain lower interest rates for consolidated debts.
The interest rate on unconsolidated debts, especially credit card debts, can be high. Debt consolidation companies may offer much lower rates, which helps you clear your debts faster while saving on interest payments.
Debt consolidation plans also provide flexibility in selecting a loan tenure. While they have some constraints, you can choose a tenure that makes monthly payments more manageable. The longer the tenure, the lower the monthly payment amount. However, a longer tenure means you will be paying more interest overall.
Eligibility criteria
To qualify for a debt consolidation plan in Singapore, you must have borrowed loans from participating financial institutions within the country, excluding joint accounts, renovation loans, education loans, medical loans, and credit facilities for business purposes.
Only one active DCP is allowed at a time due to the plan’s nature.
To be eligible for a DCP:
- You must be either a Singapore Citizen or a Permanent Resident.
- Your annual income should be between S$20,000 and below S$120,000, and your Net Personal Assets should not exceed $2 million.
- The total amount of unsecured debt on all credit cards and unsecured credit facilities with financial institutions in Singapore should be more than 12 times your monthly income.
While not all loans are eligible for a debt consolidation plan, there is still an option available through registered money lenders. Unlike traditional debt consolidation plans, which are only applicable to loans from participating financial institutions in Singapore, licensed moneylenders may offer debt consolidation loans with less restrictive eligibility requirements.
While these loans may come with higher interest rates, they can still provide a useful solution for individuals struggling to manage their debts from various sources. However, it is important to carefully consider the terms and conditions of any loan or plan before proceeding and to ensure that you can comfortably afford the monthly repayments.
What are debt consolidation loans from licensed moneylenders?
Debt consolidation loans from licensed moneylenders are a financial solution that allows you to pay off several smaller loans with a larger loan by combining all your payments into a single payment.
Just like debt consolidation plans, one of the most appealing aspects of consolidation loans is their lower interest rates, which can be much lower than those offered for other loans. This makes it easier to deal with accumulated interest rates and can provide much-needed relief to borrowers.
In Singapore, licensed moneylenders offer debt consolidation loans as a comprehensive solution that combines all your credit facilities, including credit cards, joint accounts, and renovation loans, from various financial institutions under a single management program.
The goal of these loans is to reduce your overall monthly payments by lowering your loan repayments and interest rates, making it easier to pay off your debt and save both money and time.
If you’re considering one, there are some things to look out for:
Credit score
Your credit score may affect the interest rates on your debt consolidation loan, but generally, these loans are designed to have lower interest rates and help people clear off their debts.
Read this article for various ways to improve your credit score.
Eligibility requirements
Eligibility for a debt consolidation loan from licensed moneylenders in Singapore varies depending on the type and amount of debt you have.
Typically, licensed moneylenders offer loans to individuals who are 18 years old and above and residing in Singapore, including Citizens, Permanent Residents, and foreigners with a valid work pass. Borrowers are required to have a stable monthly income to ensure timely repayment of the loan.
The maximum amount you can borrow is determined based on your monthly income and the total amount of debt you have.
Debts eligible for consolidation
Not all debts can be consolidated through a debt consolidation loan, only unsecured loans without collateral can be refinanced. Loans for specific purposes like education, car, or home loans are also ineligible. Although debt consolidation loans can be a useful tool for those with significant debts, they still require discipline and wise choices to borrow money the right way. Careful research is crucial before committing to a debt consolidation plan.
What to note before applying for a debt consolidation loan
Always review money lenders to differentiate registered lenders from loan sharks and avoid falling victim to fraudulent and unlicensed ones. These unscrupulous lenders often charge unfairly compounded high-interest rates and hidden fees, which can lead to significant financial burdens and emotional stress.
To protect yourself, only deal with approved debt consolidation companies or established and licensed moneylenders. Beware of online companies that offer very low-interest rates and high upfront fees, as they may be scams designed to swindle your money.
To avoid such scams, ensure that you are dealing with a licensed moneylender as per Singapore’s Ministry of Law’s list of approved lenders.
Debt Consolidation Plans (DCP) vs Debt Consolidation Loans (DCL)
Next step
To get started on your path to becoming debt-free, it’s essential to track your debts and understand how far you are from repaying them. If you’re struggling to keep up with multiple debts, consider speaking to a licensed money lender in Singapore about the debt consolidation plans they offer.
If you’re located in Hougang or Toa Payoh, Goldstar Credit is a licensed money lender you may want to consider. Our debt consolidation loans can help simplify your debt management and make repayments more manageable.
Taking the first step towards a debt-free life is always the hardest, but with the right support, it’s possible. If you’re still unsure about debt consolidation or have questions, contact our team today, and we’ll be happy to assist you.
About the Author
Instituted since 2009, Goldstar Credit is a proficient licensed lender through and through. We pride ourselves on sharing our extensive personal finance expertise and knowledge with anyone and everyone who is keen on learning more about them.
