Maintaining a steady credit balance and keeping updated with all your credit card debts are quite difficult to manage. The situation turns even more difficult if you have multiple debts. You may find yourself trapped into several dates and loan-clearing amounts to pay. Housing loans, home repairing debts, vehicle loans, and the list is endless and so is your stress.
Multiple date reminders from moneylenders and loan creditors keep counting into your concern on a regular basis. In such circumstances, debt consolidation plans may come handy for credit cards and loans. It’s a simple solution to your multiple debt clearing processes. Read on for here we’ll discuss the particulars that involve such plans.
What Is A Debt Consolidation Plan?
Before diving into the process you must understand the basics of a debt consolidation plan. Consolidation, as we know, is a method of merging certain things together into an even more productive plan. Hence, debt consolidation refers to the idea of merging your debts into one single plan that is more convenient to pay off. Debt consolidation comes with a comparatively lowered interest rate so that it doesn’t fall a burden on your shoulder in the long run.
In 2017, the Association Of Banks in Singapore launched the debt consolidation plan as loan management equipment exclusive for Singaporeans. Such a consolidation plan is specifically designed for those permanent dwellers of Singapore who have outstanding debts that are more than 12 times their monthly earnings. Instead of getting into high-interests of unsecured credit like a home loan, personal loan, or a credit card payment, you may find such easily available plans to finance all of them at a time.
However, there are certain unsecured debts that are not payable by a consolidation plan. These include a renovation debt, an education debt, joint accounts, and business credit facilities. You cannot consolidate debt if you have any of these mentioned unsecured credit plans.
How Does A Debt Consolidation Plan Work
For a better understanding of how a debt consolidation plan works, we need to site an example. Suppose, Jack draws a monthly income of S$3,000 and his present outstanding balance is S$40,000 with the credit facilities of 3 credit cards and 1 personal loan from different creditors.
|Credits||Outstanding Balances||Interest Rate||Minimum Payment|
|Credit Card 1||S$15,000||26% p.a.||S$450|
|Credit Card 2||S$10,500||25% p.a.||S$315|
|Credit Card 3||S$8,000||25.95% p.a.||S$240|
|Personal Loan (2 years)||S$6,500||11.32% p.a.||S$270|
Jack can hardly handle the minimum spending of S$1,275 per month that is close to half of his monthly earnings. Moreover, his total outstanding balances are beyond 12 times his salary.
With this interest rate he has to pay off almost S$9,336 per year as interest. Since the interest rate on credit card compounds and keeps adding to the left credit balance, the interest-bearing will take him more than a decade and clear his debt.
Now, a debt consolidating plan merges these credit cards and loan amounts and clubs them into one single loan. needless to say, the creditor that provides the consolidation loan will take over and pay out his payable money, outstanding credits, and associated charges from his credit cards and other debt amounts. The consolidated debt includes all the money even when they are from different institutions. Once the outstanding payments of credit cards and loans are paid, these accounts get suspended.
The only debt that Jack has to pay further is the debt consolidation amount with a fairly low monthly interest rate until the debt is cleared.
Suppose Jack is a native Singaporean and gets a money consolidation loan from HSBC with a time period of 8 years for repayment. It comes with a flat interest rate of 3.8% p.a. (from 7% p.a. EIR). The following chart shows how much he has to spend per month considering his consolidating plan.
|Money Transactions||Current Payment||Debt Consolidation Plan|
|Total outstanding balance||S$40,000||S$42,000 (including fees and 5% allowance)|
|Interest rate||26% p.a.25% p.a.25.95% p.a.11.32% p.a.||3.8% p.a. (from 7% p.a. EIR)|
|Total payable interest over a year||S$9,337||S$1,602|
|Total payable interest over 8 years||S$74,964||S$12,816|
These are facts and figures that may vary according to the bank’s loan plans and interests.
Hence, you can see with the money paying plan Jack’s monthly repayment becomes easy to manage. With this loan, he will be able to repay the whole amount within 8 years given that he pays the monthly interest on time. In this way, he will be through this huge amount and will also save almost S$60,000 on interest payments.
How Do I Know If I Should Get A Debt Consolidation Plan
The crucial part of the process is to identify if you need a debt consolidation loan at all. There are many such situations where borrowers end up taking consolidation loans that they don’t even need, or they are incapable of repaying the debt on time. Hence, you must take into consideration the following factors before concluding that you should get a debt consolidation loan.
- Defaulting On Loan Repayments
Calculate your monthly expenses that go into credit card repayments and paying the loan interest. You will figure out whether you are going to be a defaulter on loan repayments or not. If yes, then it’s time for choosing your plan that will help you get through the stress of paying high interest per month.
- Borrower Has Unmanageable Amounts Of Debt
If you are a money borrower and cannot manage the huge amount of outstanding balance that you have to pay, it’s time to think otherwise. Look at your monthly income and see if you are on an unimaginable amount of debt. Count all the extra charges and fees as well. If the amount exceeds your yearly earnings by 12 times, then you must opt for money combining loans.
- High Loan Interest Rates
There are several banks and financial houses in Singapore that will lend you money with a fairly high-interest rate. If you fall into the trap of any of these banks, your debt is going to enlarge into a profound amount that you may find impossible to pay off. In cases like this, you can always find a solution to your trouble by choosing the right debt consolidation plan.
How Much Can You Borrow From A Debt Consolidation Plan
Now the question is how much money you can borrow as a debt from a debt consolidation plan. Usually, the bank lends money consolidating loan to you on the basis of your total outstanding balance that is payable. This includes other charges and fees as well. However, you have to give a detailed account of your payable amount in your account statement.
Certainly, there are occasions where you may find your debt combining plan cannot afford the total repayable outstanding credit. In that case, you have to pay off the balance credit to the creditor or the bank from which you borrowed money, directly.
Your initial Debt combining loan helps you with an additional 5% allotment above the total consolidated amount. This amount helps you to take care of the subsidiary charges and fees that may have risen in between the time when your combining loan gets approved and the amount gets transferred to your account. This 5% allowance goes straight to the financial institution you lend money from without being credited to your personal savings account. However, after paying off the charges if any of this 5% allowance is left, then that directly gets retransferred to you.
Who Qualifies For A Debt Consolidation Plan In Singapore
However, the most important factor lies here. You must know who qualifies for debt consolidation plans in Singapore. DCP is exclusively made for native Singaporeans. If you are a permanent resident of Singapore, then this plan is for you. But, besides that being the basic criterion, there are other important factors that lie beneath this loan process.
- You have to be employed with a steady monthly salary and annual earnings of more than S$30,000 up to S$120,000.
- You must have interest-bearing outstanding amounts on unsecured credit facilities which should be more than 12 times your monthly earnings.
- You can avail only one such loan at a time actively.
- 3 months down the line, you are eligible to refinance the ongoing consolidation debt with some other combining plans with even lowered interests.
- You can’t apply for a new credit card or a loan until you pay off the existing debt with your ongoing plan and the outstanding balance reduces to 8 times your salary.
Where Can I Get The Best Debt Consolidation Plan In Singapore
For your instant convenience, we’ll make a list of 14 banks and financial houses based in Singapore that provide such plans.
- American Express International, Inc.
- CIMB Bank Berhad
- Citibank Singapore Limited
- Bank of China Limited Singapore
- Diners Club Singapore Pte Ltd
- DBS/POSB Bank Ltd
- HL Bank
- HSBC Bank (Singapore) Limited
- Standard Chartered Bank (Singapore) Limited
- Maybank Singapore Limited
- Industrial and Commercial Bank of China Limited
- RHB Bank Berhad
- Oversea-Chinese Banking Corporation Limited
- United Overseas Bank Limited
However, you are free to choose from these banks for your debt consolidation plans even if you haven’t made any transaction with them before. But, you must always take a close look at the terms and conditions these banks provide, before choosing yours. These banks may vary in their interest rates as well as other applicable conditions in case of a debt combining plan. These financial institutions make the amount details per month and send them to the credit bureau team. You can study the credit bureau report of a particular bank before applying.
Moreover, we recommend that you compare the financial institutions and the bureau report charts in concern with such plans before opting for your combining loan. while comparing, do keep in mind your financial condition and monthly earnings and find the convenient one.
To conclude, debt consolidation loans are convenient debt management equipment to get through the huge interest rates of your ongoing credit cards and loan amounts. If you find yourself as someone with multiple credit card repayments and other personal loans, a debt combining plan may help you out by taking over your entire money load and offer you a lowered interest rate to pay.
You may find your convenient consolidation plan with a monthly interest that is affordable according to your earnings. However, you must compare the interest rates of several loan providers that provide such loans. Instant Loan is your go-to website for comparing the rates of interest and terms in order to choose the most convenient one for your financial dilemma.