The Singaporean’s Guide To Understanding What Is Debt Consolidation Plan

Personal Finance

The Singaporean’s Guide To Understanding What Is Debt Consolidation Plan

October 11, 2023

Money management is difficult in the modern world. Possible outcomes include substantial debt and sky-high interest rates. But there’s a solution. A debt consolidation reduction plan (DCR) is a practical response to this problem.

But what is debt consolidation plan? Keep reading as we find out what it is, its eligibility criteria, and the application process.

Definition Of Debt Consolidation Plan (DCP)

Debt Consolidation Plan is a financial approach assisting individuals in Singapore who are facing the challenge of managing multiple debts with higher interest rates. The primary objective is alleviation by consolidating many outstanding debts into a single loan.

The interest rate on this plan is set. This facilitates the borrowers’ ability to handle loan repayments effectively and reduces the overall interest costs.

The availability of DCPs is made easier by the financial institutions in Singapore that exceeds and choose to participate in the initiative. These programs are subject to the Monetary Authority of Singapore (MAS) oversight.

Unsecured Loans That Do Not Qualify For DCP

Keep in mind that only certain kinds of unsecured loans from existing unsecured credit facilities are eligible for DCP coverage. Loans in Singapore that exceeds 12 times the applicant’s monthly salary are not eligible. Examples include:

  • Credit card
  • Medical loans
  • Renovation loans
  • Education loan debts

Eligibility Criteria For DCP In Singapore

Eligibility Criteria For DCP In Singapore

DCP provides debtors in Singapore with the applicable method for managing several obligations. To meet the requirements of financial institutions and governing bodies, individuals must reach the set eligibility standards.

Citizenship Of Singapore Or Long-term Resident Status

To be eligible for the DCP, one must be a Permanent Resident or citizen of Singapore. This requirement guarantees that the residents of the region can utilise the plan.

Income And Minimum Necessary Personal Assets

Qualifying for the DCP is heavily dependent on annual income. It would be preferable if your yearly income were within a certain bracket, usually equivalent to $20,000 – $120,000.

This scale guarantees that persons of varying financial means can participate in the consolidation program.

Net personal assets are another factor that banks and other lenders consider. If you have a net worth of more than $2 million, you may not qualify for a DCP.

Debt Requirements Per Singapore’s Financial Practices

To participate in the program, the balance of your unsecured debt on all credit cards from unsecured credit facilities must not exceed 12 times of your monthly income. Considering this metric, you may ascertain whether or not consolidating your debt would be in your best interests.

Income-qualifying criteria like this directly assist banks and credit unions in helping those with financial difficulties.

If you meet the requirements, you can continue the application process and get your financial life back on track.

How To Apply For A Debt Consolidation Program (DCP) In Singapore

Here are the procedures you’ll need to follow for a DCP application in Singapore:

Pick a bank that suits you best: Locate a reliable Singaporean financial institution offering DCP services. Take into account:

  • The terms and conditions governing the bank
  • Interest rates
  • Type of account (individual or joint accounts)
  • Customer reviews

Gather the mandatory paperwork: Before you begin the application procedure, ensure you have all the necessary documentation. This includes documents such as:

  • Singaporean nationals and permanent residents should provide identity documents like passports, employment permits, and the National Registration Identity Card (NRIC).
  • Details on total outstanding balance bills. Accumulate all paperwork respective to your unsecured debt, such as loan and existing credit card statements.
  • Money receipts or additional evidence of financial stability. Paychecks, tax records, and your CPF payment record qualify as acceptable proof of monthly income.

To apply: You fill out the DCP request form that your banking institution offers. Either apply online or in a local branch. If you’re going to submit information, be sure it’s current and correct.

Review and approve: The bank will review your DCP request and any supporting materials to determine your eligibility for the program. The process will validate your debts, earnings, and other relevant details. Upon approval of your application offer, the lender will inform you of the maximum loan amount.

Debt settlement upon acceptance: The money you receive from the DCP loan will go towards settling any debts that exist, whereby you owe other lenders after the assessment. Debt consolidation automatically reduces monthly minimum payment amounts by combining multiple debts into one.

It’s time to start making payments: After they consolidate and the funds are granted for businesses or business purposes, you’ll have a set amount to send to the lender of the DCP on a daily or monthly basis.

Your transfer DCP credit limit likely carries a new interest rate less than the total prices on your prior obligations, which could reduce your total financing costs. You should be responsible and ensure you meet your monthly payments.

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DCP Debt Refinancing And Payment Settling 

To effectively handle DCPs, it’s important to refinance and pay off any outstanding principal sums.

Refinancing: Please think about getting a new loan for your DCP if you find better rates or more accommodating terms with another lender in the future. They shall move your DCP funds to your new financial institution.

Paying off outstanding balances: Regular instalments on your DCP debt will allow you to settle the balance in due time. Maintain a good credit score by always paying your payments on time.

Singapore Revolving Credit Line

When looking for a DCP in Singapore, it is essential to be aware of all the options and features that can be available. One such option that can provide you with greater flexibility in managing your finances is the revolving credit facility.

The Singapore revolving credit facility includes the following features, qualities, prices, and fees:

Scope And Characteristics Of The Revolving Credit Line

Revolving credit facilities are a part of several financial organisations’ debt consolidation strategies. It provides leeway for unexpected expenses or sudden needs. The features and goals of the revolving credit facility include:

  • Flexibility: More leeway with your money is the main idea behind a revolving credit arrangement. Instead of taking out a fresh loan or utilising a credit card, you can access the credit line in your DCP to meet any sudden costs.
  • Emergency cash: With a revolving credit facility, you can get money fast for daily essentials in case of an emergency without having to apply for a new loan. Thanks to this, there won’t be any unexpected expenses in the event of an accident.
  • It eliminates the need to start the application procedure from scratch if more funding is necessary. You can utilise the credit line without any hassle within the parameters set by the bank.
  • Fixed interest rates: The rates on revolving credit facilities are typically more reasonable than the credit cards and unsecured credit facilities with financial institutions. You should opt for this fix for sudden monetary emergencies with no notice, as it is the more cost-effective option.

The Costs Of Maintaining A Revolving Credit Account

Although the revolving credit facility has several benefits, it is essential to be conscious of the costs that come with them. Financial institutions may differ regarding regulations and requirements. Thus, reading them thoroughly before utilising the facility is a must.

You should note the following:

  • Interest fees and charges: Borrowing money from a revolving credit facility will incur total interest-bearing unsecured debt charges. Interest may still accrue if payments are late, though it is usually lower than with credit cards.
  • Annual Fee: Some banks may charge a yearly charge to use the revolving credit facility. This contribution will help cover the costs of keeping the building operational.
  • Withdrawal fee: Withdrawals from a revolving credit line may be subject to fees. These costs may be a flat rate or a proportion of the total amount they collect.

Impact On Credit Bureau Records In Singapore

Let’s look at the effect of DCP on credit records:

  • Positive impact: Your credit history might improve if you regularly and timely repay DCP. It demonstrates your commitment to repaying your debts and managing your finances sensibly, which could improve your rating.
  • Impact in the short term: Participating in a DCP may initially result in a modest reduction in your credit rating. Opening a new credit line could have a short-term impact on your credit usage ratio. Your score should improve if you continuously settle off your DCP, though.
  • Long-term benefit: Your credit rating may increase as per the completion of timely payments and reduce your debt burden via the DCP.

How Long Will My DCP Account Remain On My Credit Report?

The length of time a DCP account remains on your credit record depends on the payback period.

Your credit history will reflect it if the DCP remains in force. If other participating financial institutions across the country are aware of this information, they will comprehend your commitments better.

After you pay the financial obligation and it is closed or suspended, your DCP will show up on your credit report for a short period. This is due to the fact that credit reports might reveal important information about your credit history.

The DCP account can remain on your credit record for up to seven years after the date you paid it off. The average length of time for such accounts, particularly DCPs, to remain on credit reports in Singapore is between three and five years.

DC Registry In Singapore

The Debt Consolidation Registry (DCR) is a central database that records information about active DCP accounts. Its goal is to help banks determine if borrowers meet their criteria for new loan lines without compromising their moral compass.

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Last Words

Singaporeans can benefit from a debt consolidation plan in several ways, including easier loan repayment and lower interest rates. Before deciding on a DCP, it’s essential to research the prerequisites, application process, mode of payment, and impact on credit history.