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Debt Consolidation Plans for 2020

Consolidate your debts into one payment with a debt consolidation plan.

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A debt consolidation plan (DCP) allows you to combine all your loans into one. Essentially, it can give you a way to reduce your interest rates and fees, and help you to get out of debt.

This guide covers debt consolidation plans in Singapore, including how they work and the factors you should consider before getting one.

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Name Product Interest Rate From Maximum Loan Amount Loan Tenure
HSBC Debt Consolidation Plan
3.8% 

EIR: 7%

Equivalent to the total outstanding principal balance subject to additional 5% allowance on top of the total DCP amount.
Up to 10 years
Consolidate your outstanding balances from as low as 3.8% p.a. (EIR 7% p.a.) with no processing fee. Ends 30 September 2020. T&Cs apply.
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Find out if you're eligible for the Special Financial Relief Programme (Unsecured)

As a special economic measure against the COVID-19 pandemic, the Monetary Authority of Singapore (MAS) has collaborated with the financial industry to introduced the SFRP (Unsecured) as part of the relief package. This is intended to help those who’re having difficulties meeting repayments under their existing unsecured credit facilities due to a temporary income loss or decline during this trying period.

From now until 31 Dec 2020, you may request your bank/financial institution to convert your credit card/credit line debt into a term loan (up to a maximum of 5 years) with a standardised effective interest rate of 8% p.a.

To apply for the SFRP, you’ll need to be a Singapore citizen or PR and able to prove that you’ve lost at least 25% of your income since Feb 2020.

How does a debt consolidation plan work?

If you have multiple unsecured debts (e.g. personal loan and credit card bills), you can combine these outstanding balances into a single loan, known as a debt consolidation plan (DCP). By taking out a DCP, the provider will cover the money you owe so that you can focus on repaying this new loan.

The interest charged on your debt consolidation plan is typically much lower than that of your other debts, which will help you save money through lower repayments. However, make sure that you’re aware of any refinancing costs or early repayment fees on your other debts, as these will also need to be paid as part of the process.

What debt can I consolidate?

It’s possible to consolidate a variety of debts using one of these loans. Common types of debt consolidation plans include the following:

Personal loans

This is a common type of debt that is often consolidated. You can take out a debt consolidation loan to consolidate two or more separate personal loans, a personal loan and another type of credit, or even refinance a personal loan to one with a lower rate and/or fees.

Credit cards

If you have a large outstanding balance due on your credit card, then you can consider taking out a personal loan to pay it off. This is often an option when you want to consolidate your credit card as well as another debt, or if you aren’t a candidate for a balance transfer.

Other credit accounts

Depending on the loan you take out, you may also be able to consolidate other types of debt. This can include private loans, debts to utility companies etc. Check with the credit provider to see what kind of debts they allow you to consolidate.

Why should you consider consolidating your unsecured debt to a DCP?

Here are the main benefits to keep in mind:

  • Reduce the interest you’re paying. Interest rates differ, but personal loan interest rates are typically lower than credit card interest rates.
  • Have a fixed repayment period. Credit cards are ongoing lines of credit, while personal loans give you a fixed date to repay your debt.
  • Access finance for other purposes. You can also use the personal loan to make other large purchases or to finance any other purpose you need.

Steps to using a debt consolidation plan

Once you have decided to use a debt consolidation plan, you will need to do the following:

  • Calculate how much you need to borrow to cover your debts. This should include any fees or charges you will have to cover in order to pay off your existing debts early.
  • Research and compare personal loan products to find one that meets your needs.
  • Apply for the personal loan.
  • Use the funds to pay off your other debts, along with any fees or charges.
  • Continue to make repayments on your personal loan until it has been repaid.

What to consider before applying for a DCP

  • Affordability. You should confirm that the personal loan you use will be cheaper to pay off than your existing debts. You must also ensure that you will be able to cover the repayments on your new loan to avoid going into further debt. For example, debt consolidation plans tend to include processing fees, early termination fees and late fees that could add up quickly.
  • Loan term. Different debt consolidation plans come with different terms, so you should pick a plan that fits best to your schedule.
  • Early repayment costs. Many loans will require you to pay additional fees or charges if you repay the loan early. These will need to be paid if you wish to consolidate your debts under a new loan and should be included in your calculations to ensure debt consolidation is the right choice for you.
  • Legitimacy. If you decide to use the services of a credit provider or a debt consolidation organisation, it’s your responsibility to check for its Ministry of Law licensing. This is because there are brokers and credit providers who operate illegally in Singapore.
  • Type of debts. Some debts cannot, and should not, be consolidated. This includes debt related to education loans, car loans, home loans, medical loans or renovation loans. In general, debt consolidation is only allowed for unsecured loans.

I have bad credit, can I still consolidate my debt?

Bad credit can strike at any time. Whether you lose your job or miss a few repayments due to illness, debt consolidation for bad credit borrowers is still possible. If you find that your repayments are spiralling out of control, debt consolidation could be for you. With the help of our guide, you could potentially get your finances back on track.

Pros and cons of debt consolidation

  • You can lower your costs and repayments.
  • No more phone calls from debt collectors.
  • You could avoid bankruptcy.
  • You could lose your property to foreclosure.
  • Your debt could increase.

Tips for debt consolidation

The following are some useful tips you can take on to help your debt consolidation plan work best for you:

  • Work out a debt management plan. If you’re in a position where you need to enter a debt agreement with your creditors, it’s important to agree to a plan that is manageable for you. These agreements are informal and can be worked out between you and your credit provider. If you choose to take out a debt consolidation plan, be sure of the debt management plan you’re getting into.
  • Use a budget. Budgeting your debt consolidation repayments ensures that they will remain manageable over the term of the loan. How much will you need to pay each month to ensure your debt is paid off? Work your loan repayments into your budget before you take out the loan.
  • Compare your options. Make sure you take a look at all the options available to you before you apply for a debt consolidation plan. Are you applying for the most competitive option available? Ensure that you compare fees, rates and any additional features to see if you’re getting the best option available to you.
  • Make extra repayments. If your loan allows for it, making additional repayments can help see your loan paid off sooner and save interest. Make sure you won’t be charged fees for additional repayments, lump-sum payments or early repayment penalties depending on how you plan to repay your loan. If you find you’re saving considerably on interest from consolidating your debt, make sure to put those savings back into your loan.
  • Look for ways to cut down on your expenditure. Are there any ways you can cut down on your outgoings? By cutting down your expenditure you can have more money to make additional repayments, the benefits of which are explained above. Ensure you’re in a safe position to manage your repayments and pay back your debts.
  • Meet your monthly payments. Debt consolidation will affect your credit score as it is considered a form of unsecured credit. By repaying your payments on time, debt consolidation plans could improve your credit score, exposing you to more favourable loan options in the future.

How to apply for a debt consolidation plan

Once you’ve compared your options, you can consider applying for a debt consolidation loan online via the DCP provider’s website. Before you apply, make sure to check if you meet the eligibility criteria to complete the application. The specific requirements will vary between providers, but typically includes:

Eligibility criteria

  • Singapore citizen or permanent resident
  • Between 21 to 65 years old
  • Annual income between S$20,000 and $120,000
  • Net personal assets less than S$2 million
  • Unsecured outstanding balances over 12 times of your monthly income

Required documents

The supporting documents that may be required include:

  • A photocopy of your NRIC or passport
  • Latest credit bureau report
  • Latest income documents
  • Copy of the latest statements of your credit cards and unsecured credit facilities

Frequently asked questions

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