Guide to Debt Consolidation Plan Singapore – Offerings by Local Banks

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debt consolidation plan singapore

After the great Recession hit the world, Singapore was also among the affected ones. This led to increase in debt/ borrowers to twice from year 2004 to 2014. People have submerged themselves into debt and want to get out of it but do not know how they should proceed. Do not worry, we bring you some of the great ways to help you come out of the vicious circle of Debt.

Debt repayment Options

With plans like Debt Management program running since 2004 by Credit Counselling Singapore and debt repayment Scheme by Insolvency Officer, there has been found a new option for all the Singaporeans to repay the loan. The scheme is called as Debt Consolidation Plan helping you to repay your loans/debts much more easily.

So, what’s Debt Consolidation Plan?

Managing your debts would be much easier with the new debt repayment tool called Debt Consolidation Plan started by the Association of Banks in Singapore. The plan started this year in January with an aim to manage all the unsecured loans (Credit Card Loans, Personal Loans etc) of the Singaporeans allowing to merge them into a single loan with lower interest rates. This has to be paid monthly.

Savings from Debt Consolidation Plan.

Let us assume you have$30,000 of unsecured loans , which have to repaid in next 5 years.

Interest Rate

20%-26%

Combined Interest of 5 years

$17,688.99-$23,892.84

Monthly Repayment

$794.82-$898.21

Now, assume you take any Financial Institution Debt consolidation Plan , what would be the difference in Interest amount and the monthly repayment you have to pay?

Interest Rate

11%

Combined Interest of 5 years

$9136.36

Monthly Repayment

$652.27

This shows that around $8552 to $14,756 would be saved in your Interest itself with monthly payment reducing to around $140 to $240.

Vital things you must know about Debt consolidation plans

  • In Debt Consolidation Plan, there will be an additional allowance of 5% or less charged above your unsecured Debt for covering the incidental charges. This makes the total amount to be repaid by Debt Consolidation plan a bit more than your actual Unsecured Debt. This option cannot be eliminated and is mandatory.
  • The Debt Consolidation Plans refers to the credit score/review and any of the banking/financial institution holds the right to reject you for taking up the plan or offer such plans, which has lower value than your unsecured debt.
  • As soon as the Debt Consolidation Plan will be enabled, you would no longer have access to your credit cards, Credit facilities, as they would be invalid.
  • You would not be able to apply for any new Credit facilities till your Outstanding Debt balance is lower than 8times your monthly income or 4times the Financial Institution which you have chosen for Debt Consolidation Plan.

Agree on all, but who all are eligible for it?

The eligibility Criteria for Debt Consolidation plan is-

  • You must hold a Citizenship or Permanente resident status of Singapore.
  • Any salaried employee earning from $20,000 to $1,20,000 annually.
  • If you have Net Personal Assets (Total Assets- Total Liabilities) of not more than $2 Million.
  • Must have unsecured loans of minimum 12 times of the Monthly Income.

Applying for Debt Consolidation Plan

The new Debt Consolidation Plans are at present provided by 14 Financial Institutions of Singapore. You are free to chose any of these 14 Financial Institutions even if you do  not hold any bank account with them. All of them provide a bit different kind of plan so before applying you must compare the plans and zero upon the one, which bests suits your requirement. Here are the 14 banks, which provide the DCB Plan:-

  • American Express International, Inc.
  • Australia and New Zealand Banking Group Limited
  • Bank of China Limited Singapore
  • CIMB Bank Berhad
  • Citibank Singapore Limited
  • DBS Bank Ltd
  • Diners Club Singapore Pte Ltd
  • HSBC Bank (Singapore) Limited
  • Industrial and Commercial Bank of China Limited
  • Malayan Banking Berhad
  • Oversea-Chinese Banking Corporation Limited
  • RHB Bank Berhad
  • Standard Chartered Bank (Singapore) Limited
  • United Overseas Bank Limited

Also read: Things you MUST know about using CPF for Housing Loan

There are certain documents, which you must keep ready before applying for the plan. They are-

  • Last on to date  Unsecured Loans Statements
  • Front and Back Photocopy of the NRIC.
  • Latest Income and Credit bureau Report Documents
  • Confirmation letter showing unpaid Loan balances for your unsecured loans

If do not match Eligibility Criteria, then?

Debt Consolidation Plan is the new repayment scheme but if you do not qualify for it, then there are various others Debt repayment programs wherein you can apply like:-

Debt Management program:- Just like your EMI’s, this debt management program is a monthly Instalment scheme allowing the borrowers to repay the unsecured debts (Principal amount plus Interest) gradually over a period of time. Credit Counselling Singapore offers the scheme where you can apply by attending the free seminar and counselling organised by them in order to ascertain the Financial/economical condition of the borrower.

Vital Things regarding Debt management Program

  • The Free Seminar is a must for application of Debt management program.
  • The reduction in the interest rates depends wholly on the lending banks.
  • Under the Debt management programs, Unsecured loans taking from any financial Institutions or known parties will only be covered, loan from friends and relatives etc will not be covered.
  • It is not necessary for you to hold a citizenship of Singapore for the program.

Other best Alternative to Debt management Program?

The other alternative can be the Debt Repayment Scheme, which is less opted than the other plans. It is mostly taken up by the borrowers who wish to declare themselves as Bankrupt. As you would declare Bankruptcy in this, unlike the other two stated above, this would be on the Public record and not on personal or banking level.

Vital Things Regarding Debt Repayment Scheme

  • As stated above, borrowers have to file for a Bankruptcy application Form in the court after which the court will appoint an OA to check your suitability for the scheme. If the court does not find you suitable enough for Debt Repayment Scheme, you would be announced as Bankrupt.
  • To qualify for the Debt Repayment Scheme, the outstanding Debt Balance must be below $1,00,000, which will be further assessed by the OA (Official Assignee).
  • It will be on Public Record

Also read: Total Debt Servicing Ratio (TDSR) and Loan to Value (LTV) ratio – What is that?