Wondering how to consolidate debt as you’re struggling to stay afloat or are unable to pay off multiple unsecured loans at one go? Perhaps it’s high time you learned more about debt consolidation loans in Singapore.
A debt consolidation loan is somewhat of a reset button on your loans. It helps to streamline your existing personal loan repayments and close them. This way, you’ll only have to make one repayment monthly instead of multiple repayments for the multiple personal loans you have.
Plus, you can potentially save a fair bit on interest charges stemming from rapidly compounding interest on your outstanding balances. It can be very useful if you find yourself having trouble keeping up with multiple loan repayments every month!
Intrigued? Read on to find out more about debt consolidation loans and debt consolidation plans in Singapore, how they can help you save on interest, and where you can get a debt consolidation loan or debt consolidation plan in Singapore.
How debt consolidation loan helps you save on interest
Here’s an example of how a debt consolidation loan could save you interest.
For simplicity sake, let’s assume you’ve got $10,000 in personal loans to repay over 3 years to multiple financial institutions, with an average annual interest rate of 5%.
| Currently repaying | New monthly repayments with a debt consolidation loan | |
| Monthly payment (including interest charges) | $299.21 | $290.63 |
| Total interest charges | $771.58
(Based on 5% average bank interest rate compounded annually) |
$462.81
(Based on 3% reduced annual debt consolidation loan interest rate) |
| Total repayment after 3 years | $10,771.58 | $10,462.81 |
| Interest savings with a debt consolidation loan | $308.77 | |
Source: Loan Calculator
So if you were wondering, “is debt consolidation worth it?”, keep in mind that it could help you save a substantial amount of money in the long run.
Here’s everything you need to know about a debt consolidation loan, or plan.
What’s a debt consolidation plan?
First of all, take note that there’s a difference between a debt consolidation loan, and a debt consolidation plan in Singapore.
A debt consolidation plan is a programme that offers you the option to consolidate all of your unsecured personal loans from various financial institutions, and repay them through a participating bank or financial institution of your choice. This can include loans that you owe on credit cards, or other unsecured cash loans that you may have taken.
You can make these loans much easier to manage by taking all of your outstanding balances from multiple sources, and combining them into one loan that you can focus on repaying. That’s what a debt consolidation plan does to help you refinance your debt. Plus, the interest rate on a debt consolidation plan is usually quite competitive.
That being said, not all unsecured loans can be consolidated this way. Some categories of loans are excluded, such as joint accounts, education loans, medical loans, and credit facilities granted for businesses or business purposes.
What’s a debt consolidation loan?
A debt consolidation loan is offered by licensed money lenders in Singapore, and is a more simplified and straightforward version of a debt consolidation plan offered by banks.
Where banks may require you to have good credit, licensed money lenders only require you to have an annual income of at least $20,000. You’re likely to get your hands on a debt consolidation loan from a licensed money lender so long as you’re able to show proof of debt as well as proof of income.
How do debt consolidation loans work? The money that’s given to you for a debt consolidation loan in Singapore must be used to pay off existing debts, including personal loans. In some instances, some licensed money lenders may even ask that borrowers pay off their existing debts in front of them in person — this is to ensure that funds aren’t misused.
As opposed to a debt consolidation plan from a bank or financial institution, debt consolidation loan requirements by licensed money lenders are easier to meet. This way, you can focus on repaying your debts instead of feeling stressed about how to do debt consolidation with bad credit.
Before you think of personal loan consolidation with a licensed money lender, make sure to do a debt consolidation loan comparison to learn about varying interest rates, fees, and charges. Only take a loan with a licensed money lender who best meets your needs.
How to consolidate debt in Singapore?
We’ve made a simple step-by-step list for you on how to consolidate personal loans.
- Determine how much you owe in total from your multiple personal loans
- Research and find debt consolidation plans from banks and financial institutions, and debt consolidation loans from licensed money lenders in Singapore. Compile your research to compare interest rates and loan terms
- Pick a debt consolidation option that suits your financial outlook and needs the best, and apply for it
- Money will be disbursed from the debt consolidation loan that you’ve taken. Use it to pay off all your eligible personal loans. Some licensed money lenders require you to fully settle your debts in front of them before you can leave their office
- If you’re taking a debt consolidation plan, the participating bank or financial institution you’ve chosen will not disburse the funds to you. Instead, they will pay down your outstanding amounts with existing financial institutions on your behalf. They will also notify your existing financial institutions to suspend your your unsecured credit facilities
- Ensure that you’re making repayments to pay off your new debt consolidation loan or plan. You can make this easier by setting up automatic repayments
How can I restructure my personal loan?
By following the steps above and getting a good debt consolidation loan or plan, you’re essentially restructuring your loan.
If you’re finding it difficult to repay your loans and keep up with interest rates, debt consolidation can help. It does so by essentially changing your existing loan terms and making it easier for you to manage your loan repayments.
Not only will you save money on the loan amount repaid, you’ll also have fewer loans to manage and keep track of. In some cases, it can also be considered a less costly and less harsh alternative to bankruptcy!
In fact, there’s actually little difference between personal loans and debt consolidation loans. Think of debt consolidation like a type of personal loan for debt consolidation, even if you’ve got bad credit.
What’s the debt consolidation plan amount I can expect to borrow?
The amount that you can borrow for debt consolidation is determined by the total outstanding balance from your personal loans. These balances will all be added together, along with interest and any other fees or charges that you’ve accrued on your statement accounts.
In addition to that, you can borrow up to an additional 5% in allowance above your total personal loan consolidation amount for your first debt consolidation plan if you’re consolidating your debt.
This is to help you tend to any sudden incidental charges (e.g. interest or fees payable) incurred from the time that the debt consolidation plan is approved, till the time the disbursed amount is received by the financial institutions where you got your personal loans from.
Who can get a debt consolidation plan in Singapore?
Singapore Citizens and Permanent Residents can get a debt consolidation loan.
You can only take a debt consolidation loan if your total interest-bearing unsecured debt on all credit cards and unsecured credit facilities from financial institutions in Singapore is above 12 times of your monthly income.
And for debt consolidation plans from banks, you need to be earning between $20,000 and $120,000 annually, with Net Personal Assets of less than $2 million.
Where to get a debt consolidation plan in Singapore?
Multiple financial institutions in Singapore offer debt consolidation plans. As these are debt consolidation plans, this list does not include licensed money lenders, who offer debt consolidation loans.
- American Express International, Inc.
- Bank of China Limited Singapore
- CIMB Bank Berhad
- Citibank Singapore Limited
- DBS Bank Ltd
- Diners Club Singapore Pte Ltd
- HL Bank
- HSBC Bank (Singapore) Limited
- 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
What documents do I need for a debt consolidation plan application?
Have the following documents prepared for your debt consolidation plan application to be approved sooner.
- A ready copy of the front and back of your NRIC
- Your latest credit bureau report – get one here
- Your latest income documents
- Your latest credit card and unsecured credit loan statements
- If you have one, a confirmation letter evidencing unbilled principal balanced for your unsecured credit installments plans
If you intend to take a debt consolidation loan from a licensed money lender instead of a debt consolidation plan, continue reading for more information.
What’s the debt consolidation loan amount I can expect to borrow?
The amount that you can borrow from a licensed money lender for a debt consolidation loan is capped at 6X your monthly income, provided you earn at least $20,000 per year.
The only exception to this rule is if you’re going for a debt consolidation scheme under which a voluntary welfare organisation helps you with your debt consolidation loan application with a licensed money lender. With a debt consolidation scheme, you’ll be able to borrow the amount required to repay all your outstanding debts owed to licensed money lenders in Singapore.
But of course, there are rules to follow if you go for the debt consolidation scheme route. For example, you will not be able to take out any other loan from the same or other licensed money lender for the duration of your entire debt consolidation scheme.
Who can get a debt consolidation loan in Singapore?
Singapore Citizens, Permanent Residents, and Foreigners can all apply for a debt consolidation loan in Singapore.
To apply for one, you need to be earning at least $20,000 per year and be fairly deep in unsecured debt that’s bearing interest.
Where to get a debt consolidation loan in Singapore?
While not all licensed money lenders in Singapore offer debt consolidation loans, most do. Here’s a list of licensed money lenders that you can consider.
How do I get a debt consolidation loan? What documents are required for a debt consolidation loan application?
Have the following documents prepared for your debt consolidation loan application to be approved sooner.
- A ready copy of the front and back of your NRIC
- Your latest credit bureau report — get one here
- Your latest income documents, whether physical or online
- Your latest credit card and unsecured credit loan statements
- If you have one, a confirmation letter evidencing unbilled principal balanced for your unsecured credit instalment plans
- If you’re a foreigner, prepare proof of residency and a copy of your employment pass
Bottom line: Is debt consolidation worth it?
If you’ve got several high-interest loans that are getting a tad too complicated to manage, debt consolidation might be a good option for you to enjoy lower interest rates while rolling all your debts into a single bill!
Wrestle your debts down by putting yourself on a faster track to paying off your loans.
