What Is a Debt Consolidation Plan (DCP) and How Can It Help You?

This post was written in collaboration with Standard Chartered Bank (Singapore) Limited (“SCBSL”). While we are financially compensated by them, we nonetheless strive to maintain our editorial integrity and review products with the same objective lens. We are committed to providing the best recommendations and advice in order for you to make personal financial decisions with confidence. You can view our Editorial Guidelines here.

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Come to think of it, I’ve been owing money for the most part of my life. There’s my 5-figure university fees, my 25-year HDB housing loan, renovation loan, my sorely underused gym membership, the last few monthly installments for my big-ticket household appliances, and more…

This gets even more worrying if you have multiple credit card bills and need to stagger payment to manage your cashflow. Horrors when you miss even a single payment, because the late charges and interest will add to what you already owe!

 

A short primer on debt in Singapore

According to the Department of Statistics Singapore, 4.36% of the consumer loans in Singapore in 2018 were credit card loans. That number may seem small, but that’s a whopping S$11,602.3 million of debt. This amount is also higher than the previous year — S$627.4 million more to be exact. Thankfully, there are safeguards by the Monetary Authority of Singapore to control excessive debt. These include reducing the industry-wide borrowing limit on credit cards and other unsecured loan facilities to 12 times your monthly income (it used to be 24 times a few years ago).

That’s where the Debt Consolidation Plan or DCP comes in. Launched in 2017, it combines all unsecured facilities into one single bill. The DCP was announced by the Association of Banks in Singapore as a way to help Singaporeans and Permanent Residents who are financing multiple high-interest unsecured debts (like credit card outstanding balance) and have difficulty meeting payments.

So what is a DCP and how can it help you? Should you even get one or would it be better to just cancel some credit cards? Here’s what I found out:

 

What is a DCP and how does it work?

The DCP essentially helps you combine all of your unsecured credit facilities (like credit cards and personal loans). This means that you will only need to keep track of a single repayment every month. For example, when you have successfully applied for DCP with a financial institution like Standard Chartered Bank (Singapore) Limited (“SCB”), SCB will consolidate all of your eligible unsecured credit facilities outstanding into one single account.

After your DCP application is approved, a credit card will be issued to you (your credit limit will be your monthly income) while your other unsecured credit facilities with other financial institution(s) will be closed/suspended. An additional 5% will also be added to your DCP loan amount to buffer for interest charges and fees incurred on your outstanding balances and disbursed to the other financial institution(s), where applicable. Henceforth, you will only need to pay SCB a single, consolidated payment, in monthly instalments plus any outstanding balances incurred on your DCP Credit Card, for up to a period of 10 years.

A DCP can ONLY be used for unsecured credit facilities such as credit cards, personal loans and credit lines. Keep in mind that certain unsecured loans are NOT eligible, such as education loans, medical loans, renovation loans, joint accounts and credit facilities for businesses or business purposes.

We previously wrote a detailed blog post about how DCPs work. Read it here.

 

 

Can/should I get a DCP?

Not just anyone is eligible for a DCP.

For starters, some key criteria to note:
Who is eligible: Singaporeans, Permanent Residents
Age requirement: 18 years old or above
Employment status: Salaried employee, variable/commission-based employees or self-employed
Minimum annual income: S$30,000

Take for example, you are earning a monthly salary of S$3,000 and has a total loan amounting to S$5,000, getting a DCP is probably not the way to go as you can probably pay that off within a few months by cutting back on your lifestyle. Alternatively, you may want to pay off your credit card outstanding balance with a personal loan as the interest rate is much, much lower for the latter (about 7% versus a staggering ~26% respectively).

It’s recommended to get a DCP only if your outstanding unsecured debt is more than 12 times your monthly salary. To illustrate this, you are earning S$3,000 a month and currently financing your unsecured debts that total up to be S$36,000 or more, getting a DCP would be of great help. Especially if you have multiple financial institutions to pay at different times of the month and managing this is a headache or causes you to miss payments and rack up even more finance charges. With a DCP, you need only make a single payment once a month. That’s so much easier to remember and manage!

 

Interest rates: DCP versus credit card versus personal loan

To put the amount you’ll pay into perspective, here’s a comparison between a DCP, a credit card outstanding balance, and a personal loan (all interest rates shown are for illustration purposes only).

	Debt Consolidation Plan	Credit Card Outstanding Balance	Personal Loan
Effective interest rate*	~7-11% p.a.	~26% p.a.	~7-11.5% p.a.
Loan tenure	3-10 years	N/A	1-7 years
Limitations	Funds can only be used to repay all your eligible debts	Sky-high interest rate	Usually can only borrow up to 4x your monthly income

* Effective interest rate is calculated taking into consideration of S$199 non-refundable joining fee and based on average loan amount of S$60,000 and all instalment payments are paid by their respective due dates during the 3-year loan tenure.

 

Back to the example of a person who draws S$3,000 in gross salary per month and has a total debt of S$36,000, here’s how the repayment might look like after the switch from a credit card outstanding balance to a DCP (rates for illustration purposes only):

	Debt Consolidation Plan	Credit Card Outstanding Balance
Monthly payment	S$419 over 10 years (at EIR 7.15% p.a.)	S$844.49 over 10 years (~EIR 26% p.a.)
Total interest payable	S$14,328	S$65,338.71

 

With a DCP, you save over S$50,000 in interest charges compared to paying off your outstanding credit card balances over the same timeframe. Ouch.

 

Easing the financial burden

We’ve seen how a DCP can greatly lower the monthly repayment amount AND the interest charges accrued over the years. We’ve also highlighted how a DCP can simplify the management of debts. This helps you pay off your debts efficiently and work towards being debt-free as soon as possible by closing/suspending your unsecured credit facilities. You can still avail a credit card from the bank with the credit limit amounting to your monthly income sans annual fee for your daily necessities.

 

Need a DCP? Consider the Standard Chartered Debt Consolidation Plan

Currently, DCP is offered across 14 financial institutions in Singapore (new financial institution(s) may be added and/or substituted from time to time), and one of the participating financial institutions is Standard Chartered Bank (Singapore) Limited. Here are the key features of Standard Chartered Debt Consolidation Plan:

• Competitive interest rates from as low as 3.98% p.a. (effective interest rate* from 7.7% p.a.) and affordable $199 non-refundable joining fee. This interest rate is on par with the lowest offering in the market
• Receive a Standard Chartered Platinum Mastercard Credit Card with the annual fee of S$192.60 perpetually waived.

* Effective interest rate is calculated taking into consideration of S$199 non-refundable joining fee and based on average loan amount of S$60,000 and all instalment payments are paid by their respective due dates during the 3-year loan tenure.

 

Click here to submit your application with just your NRIC and copy of your latest income documents today to find out if you qualify for Standard Chartered Debt Consolidation Plan. The remaining application documentations will be requested from you upon approval.  

If you already have a DCP with another financial institution, receive 5% cashback when you refinance to SCB’s DCP. Valid till 29 February 2019. 

For more information, visit sc.com/sg/dcp to find out more about the DCP and the relevant Terms and Conditions that apply. 

 

If you’ve ever been in debt, how did you turn your situation around? Share your experience with the MoneySmart community in the comments below!

All information provided is for informational purposes only and is not intended to be as advice or an offer for any product or service. SCBSL is not liable for any informational errors, incompleteness, delays, or for any actions taken in reliance on information contained herein. All views expressed in the article are the independent opinions of MoneySmart.