Are you having trouble keeping up with bills that pile on every month while trying to settle other outstanding debts?
Tracking monthly expenses becomes much more daunting when you’re also thinking about credit card dues and personal loan repayment. The good news is, there may be an easier way to deal with all this!
If you’re under such circumstances, a debt consolidation plan might be the help you need! We’ve dedicated this article to help you with it
Today, we’ll go over everything you have to know about debt consolidation plans. You’ll find this article useful if you’re looking for a convenient way to pay off a long list of debts.
Let’s start with how a debt consolidation plan works.
What is a debt consolidation plan?
A debt consolidation plan (DCP) is a debt management scheme that combines all your existing debts and unsecured loans (including credit card dues and personal loans) into a single loan with much lower interest rates.
The bank that issues the DCP will settle your outstanding debts and close all unsecured accounts on your behalf.
You no longer have to worry about different interest rates and confusing repayment tenures from various creditors. You can focus on repaying the bank every month!
Even though the total debt feels overwhelming when lumped together, you’re given access to more favourable interest rates, so you’re not getting the short end of the stick.
Here’s why: the average DCP interest rate ranges from 3.4% p.a to 6% p.a, depending on the issuing bank.
That’s a better interest rate compared to that of credit cards and personal loans which can easily go all the way up to 28% p.a.
Where to get a debt consolidation plan?
You should only get a debt management plan from a trusted bank or major financial institution! Here are some options worth considering:
DBS
UOB
OCBC
Citibank
HSBC
Standard Chartered
Maybank
Bank of China
CIMB
American Express
Friendly reminder: compare as many banks and financial institutions as you can because each has its own fees and payment terms. We’re sure that some will fit your financial capacity!
How to qualify for a debt consolidation plan?
The first requirement to qualify for a debt plan in Singapore is to be a Singapore Citizen or Permanent Resident.
When it comes to annual income, you should be a salaried employee earning $30,000 to $120,000 per year, but some banks may accept those with only $20,000 in yearly income!
Lastly, you need to be heavily indebted to qualify. The minimum amount of unsecured debt should be more than 12 times your monthly salary.
Friendly reminder: debt consolidation plans are only for unsecured debts and loans like credit card dues and personal loans, so property loans, car loans, and education loans can't be consolidated.
How much can a debt consolidation plan cover?
In general, banks may lend you an amount equivalent to your total debt, but that’s not always the case.
Here’s how other banks calculate the amount for a debt consolidation plan: total existing unsecured debts + outstanding interest + 5% of the total amount.
The 5% additional charge may seem like a huge amount of money when all your outstanding debts are lumped together, but the issuing bank doesn’t add that to charge you more.
Instead, that percentage is used as a buffer.
When consolidating loans and debts, your bank may face late payment fees and additional charges, which is where the 5% will go.
What if the DCP isn’t enough to cover your total debt?
Unfortunately, if your total debt exceeds what the bank can lend, you’re going to have to pay the remainder off yourself.
But that’s not really a bad thing given that the chunk of your existing debts will be taken care of by your bank!
What if you don’t qualify for a debt consolidation plan?
Try to look at it on the brighter side! It means that your outstanding debts may be too low for a bank to care of them
However, that doesn’t mean your problem is over. You may want to start looking for personal loans with lower interest rates and more flexible repayment terms.
As with debt consolidation plans, you’re giving yourself the chance to settle your outstanding debt in cash at a much lower interest rate than credit cards.
You may be looking at interest rates that range from 3.4% to 8.2% depending on the bank’s assessment of your financial profile.
Dealing with outstanding debt
There’s no doubt managing existing debts can be stressful and exhausting, but there are financial planning tools that can reduce the burden off of your shoulders!
Signing up for a debt consolidation plan can be a huge leap towards financial freedom, but it’s not the only way to manage your debt. It’s all about weighing which financial tools can help you achieve a debt-free life faster and more conveniently.
If you want to learn more about debt management, or simply want some financial planning tips, don’t hesitate to reach out to us. We can connect you with experienced financial advisors who can help you reach a debt-free life.