Understanding How Debt Consolidation Works
Financial planning, tracking our transactions and loan management are all daunting yet critical activities when it comes to managing our money. While debt-free is a liberating feeling, sometimes a credit or a loan helps us seal our dream purchase. While it is advisable and feasible, we face a severe monetary crisis when we are overdue for repayment. To make matters worse, we are overwhelmed when multiple creditors provide our credits and loans.
Introducing Debt Consolidation
Debt Consolidation Loan Singapore is a commercial facility that helps a consumer combines smaller unsecured loans into a single concise loan. Instead of interacting with multiple creditors, the consumer now has to deal with only one bank. The new consolidated loan usually has lower interest rates and monthly payments, settled between you and the bank. The unsecured loans comprise of credit card debts, overdraft balances, unpaid bills, etc.
Eligibility and application
The Association of Banks introduced the Debt Consolidation Loan in Singapore in 2017. While the plan covers most unsecured loans, higher education loans, joint accounts, renovation loans and medical loans are not eligible. Moreover, for a customer to avail the services of debt consolidation, they must satisfy the following criteria –
- Singapore citizenship or permanent residence
- Annual income between $20,000 and $120,000 with personal assets within $2 million
- Total unsecured debt on credit card balances and credit facilities with financial institutions in Singapore must exceed your monthly income by 12 times
If you satisfy the criteria, then you need to apply at any one of the fourteen financial institutions in the country that provide debt consolidation plans –
- American Express International, Inc.
- Bank of China Limited Singapore
- CIMB Bank Berhad
- Citibank Singapore Limited
- DBS Bank Ltd.
- Diners Club Singapore Pvt. Ltd.
- HL Bank
- HSBC Bank (Singapore) Ltd.
- 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
Make sure you review the terms and condition of each bank and choose a scheme that fits your needs best. The process is no different from applying for regular unsecured loans, so don’t worry if you are not banking with any of the mentioned institutions.
- The documents necessary for a debt consolidation loan in Singapore are –
- National Registration Identity Card (NRIC)
- Latest Credit Bureau Report
- Latest Income Documents (check the application form for acceptable documents)
- Latest credit card and loan statements
- Confirmation letter validating any unbilled principal balances for unsecured credit instalment plans
Breaking down the process
Let us consider a scenario where you are making $3,000 a month but have credit and loan outstanding balance of $40,000 from multiple creditors. Now you are forwarding monthly payments of $1,275 towards the loans, but it is almost half of your income. Moreover, your debts exceed 12 times your monthly income. At this rate, the entire repayment will take over a decade.
Here is where Debt Consolidation Loan could help. However, it is essential to note that then plans do not erase any existing debts. They suspend all the balances, unpaid bills and credit statements temporarily when you avail a consolidation plan. Instead of repaying debts to multiple creditors, you will now pay at your facilitator only. When you choose a debt consolidation plan at any of the financial institutions, you get a new loan equivalent to your net outstanding with a uniform, single interest rate.
You will continue to pay the existing credit facilities until your debt consolidation application is approved. However, once it is complete, you cannot use the services of your previous credit facilitators. Your chosen financial institution will notify the existing creditors, and you will start paying the new debt amount to the bank in monthly instalments.
Additionally, you receive a 5% allowance over the net consolidated amount on your first application. The extra credits help you incur any charges billed to you during the entire application process, that is, from the date of appeal to the time of approval. In case you do not require the total allowance, it is refunded back to you.
When you apply for a plan with the institution, you cannot request for a partial consolidation of your loan amount statements. If the consolidation plan does not cover any balances, you need to repay the additional amount separately with the concerned creditors on the initial terms.
Introducing Personal Loans
Now that you have an idea regarding debt consolidation loan in Singapore, it is clear that the schemes cater to consumers knee-deep in debt. For smaller loan amounts, apply personal loans Singapore as an alternative.
Personal loans offer simple financial solutions, and they are easy to manage. With a personal loan, you can repay the existing credit balances and bills, and eventually settle a more manageable loan. Multiple banks offer personal loans in Singapore with fixed repayment periods and low simple interests rates.
Personal loans stand out with the flexibility they offer in terms of repayment. There is no hard cap on the amount you can borrow or the duration of repayment. Hence, it is a viable option in case you are not inclined towards or eligible for debt consolidation plans.
It is a common misconception that personal loans address critical financial crises exclusively. They help you manage stressful situations when it comes to money. Like you require some additional funds to plan a family wedding or planning on a complete home redecoration or overhaul. Personal loans can help you navigate these situations with configurable repayment options.
Concisely, we can say Debt Consolidation Loan is a financial tool. It helps you draw a new loan that covers all other liabilities and unsecured consumer debts. Remember that it does not erase any existing credit balances or bills. The plans streamline your entire loan amount by transferring to a new account governed by your preferred financial institution. Debt consolidation is an approach to help ease the pressure of debts and interests on the consumer and help them fulfil repayments sooner. For smaller debt amount, apply for personal loans in Singapore and satisfy your financial obligations quickly.