It can be challenging to handle overdue debts on a single credit card. However, it is worse when you fall into debt with different creditors. The different payment due dates, and frequent reminders can be overwhelming.
Debt issues can lead to emotional, financial, and relational stress. However, the right financial choices can assist you in avoiding the debt trap.
Keeping a good credit history is essential to make it easier to qualify and obtain loans when needed. Suppose you are in a difficult situation of trying to make timely personal loans and credit card repayments.
In that case, a debt consolidation plan money lender might be the solution you need.
What Is A Debt Consolidation Plan?
A debt consolidation plan (DCP) is a debt management method that enables you to combine all your existing debts into a single one with a bank.
Licensed money lenders offer debt consolidation loans, which are slightly different from a DCP. A DCP is only offered by banks.
Debt consolidation helps you to make one monthly payment instead of paying several installments on different dates. This makes it easier for you to manage your repayments. You should ensure that the interest rate of this new loan is lower than the rest of your debts.
The most important thing when it comes to consolidating debts is that it helps you to organise your pending bills at a more affordable interest rate.
This way, you need only worry about making one repayment every month.
How It Works
Suppose you earn a monthly income of $3,000. You also registered for credit cards and borrowed several personal loans.
You then used these loans to purchase several things, such as clothes, jewellery, and furniture, but found it difficult to pay off the debts on time.
As a result, the debts accumulated to $80,000, 12 times more than your monthly salary. Applying for a DCP or debt consolidation loan with your money lender can help settle your debts.
Later, you will be required to make monthly installments with the lender you have signed with. When you consolidate debt loans, it works as follows:
- Your pending unsecured loans from different money lenders or banks are moved to one financial institution or a licensed money lender.
- You will have a reduced interest rate. You should make fixed monthly installments until you repay pending balances.
Consolidating debt combines all your unsecured loans into a single loan.
The bank offering the DCP will significantly buy your outstanding balances and charges payable from your credit cards and personal loans, even if they are from different lenders or banks.
Subsequently, the accounts will be closed permanently or face temporary suspension. Consolidating debt loans means you will make monthly payments to the bank offering the DCP until you clear all the debt.
What A Debt Consolidation Plan Can Be Used For
Only offered by banks, a DCP can:
- Lower your monthly payments
- Reduce your loan’s interest rates and other charges
- Help you to improve your credit score
- Simplify your bill paying process
A DCP was designed for unsecured loans such as:
- Personal loans
- Credit lines
- Credit cards
It is not a good idea to use a loan that yields interest to pay off a loan that will not accrue interest.
Loan consolidation programmes can pay the bills for you without having the debts accumulate interest. You can refinance secured loans such as property, homes, and automobiles; therefore, they don’t qualify for this plan.
What It Excludes
In Singapore, you cannot consolidate all types of loans. You should note that you cannot obtain a DCP for a secured loan.
Secured loans such as car loans and mortgages are not included in the plan. Also, some types of unsecured loans are excluded from DCP. They include the following:
- 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.
Before considering taking the loan, you should note that your overall unsecured debt must be at least 12 times your monthly income. Therefore, it is available for those with higher debt.
Who Can Apply For A DCP
Every bank sets their eligibility for who can apply for debt consolidation plans. They will have to check your income, credit score, and income and debt to income ratio to check whether you can repay your loan.
To be eligible for this loan, you should be a Singapore citizen or permanent citizen, employed and earn an annual salary between $30,000 to $120,000.
You should also have pending interest-bearing balances on your unsecured credit loans totaling 12 times your monthly income. However, you can only have one active DCP at a specific time.
When three months are over, you can refinance your DCP with another participating bank if you find one with lower interest rates.
There are benefits of refinancing your DCP with a different bank. For instance, you can get a discount on the loan.
Some documents are required for you to be eligible for the loan. The documents required may vary depending on the lender you use to apply debt consolidation plans in Singapore.
But mostly, the following documents are needed for the debt consolidation plan by a bank in Singapore:
- Recent credit bureau report that shows your credit score
- Copy of front and back of your NRIC
- A confirmation letter showing the unbilled balances for the unsecured credit card and installment plans
- Recent income documents
- Recent credit card and unsecured loan reports from your current lenders.
- If you are a foreigner, you need to offer work permits, E Pass/S Pass
- Proof of residence like utility bills or tenancy agreements
For debt consolidation loans from a licensed money lender, the eligibility criteria are more lenient.
What To Consider Before Applying
Before taking this kind of loan, you should understand how it works. You don’t want to get additional charges in the middle of your DCP loan term. The following are some considerations:
Repaying With Another Financial Institution
If you apply for a debt consolidation plan in Singapore with a financial institution and decide you don’t like it, you can decide to deal with a different institution.
While you can repay your debts using another financial institution, you are required 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.
Keep in mind that you may face penalty charges or early termination fees. Ensure you consult your financial expert before making any decisions.
Unsecured Loans, Credit Card Facilities, And Lines Of Credit Will Be Suspended
You should note that you won’t be able to apply for a new credit card or loan and use your credit facilities once the DCP has been approved.
This is important as it assists you in focusing on debts. Nevertheless, the bank that approved your DCP will offer you a revolving credit facility. You will still have credit to finance your daily needs.
There Is An Additional 5% Fee
When approved, the total amount calculated under the DCP will include your pending debts, outstanding interests, and an additional 5%.
When you get this additional amount, don’t get shocked as the lender did not get it wrong. This amount acts as a buffer for the rest of the loans.
Imagine you have applied for a DCP with a bank. It has accepted your application and is supposed to pay all your unsecured loans to all the financial institutions you owe.
But there are charges such as late payment fees and extra charges. So this 5% will settle those extra charges that may arise.
You May Not Receive The Exact Amount
The financial institution that accepts your DCP may endeavour to clear all your debts. But this depends on your income and situation.
Because of some issues, the approved DCP may not cover the whole amount of your debt. So you may be required to pay the remaining balances independently.
Alternatives To The DCP
Getting debt consolidation plans in Singapore from a bank may be difficult due to their strict eligibility procedures.
When this happens, do not worry because you can opt for a debt consolidation plan money lender because it can help you with a debt repayment plan too.
Licensed money lenders have less stringent rules than banks, and offer fast and efficient approval of debt consolidation loans. They can process loans for debt consolidation and then approve them fast.
With a licensed money lender, you have a high chance of being approved for a debt consolidation loan. Most money lenders often have online application forms, making application and approval processes easier.
Debt Consolidation Can Help You Manage Your Debts Better
To sum it up, a debt consolidation loan is a viable way to repay your debts. To get the best outcome, stick to a plan that suits your specific needs.
You can use a debt consolidation calculator to determine how this loan could affect your finances. When planning to take this loan, think about what caused the debt accumulation initially and get to the root of the problem.
Debt consolidation may feel like instant relief, but it may not help you if there are financial issues that have not been solved.
If you are considering getting this loan from a debt consolidation plan money lender and need some funds for urgent situations, you can talk to a financial expert at CreditMaster to get the best deals.
We can offer terms that suit your specific financial needs, thus helping you get out of debt and manage your finances.
Contact us now or apply for a loan with us today.
