Personal Loans

Debt Consolidation Plans in Singapore – What Are They & How Do They Work?

debt consolidation plan

In Singapore, we’re really helpful. When an accident happens on the road, we always slow down our vehicles to make sure that no one is seriously injured. In fact, so many of us do it that it often causes a significant traffic jam. Wait, what? You’re telling me they’re just taking down the number plate? To buy 4D? Aiyah, why did you burst my bubble like that. I’ll pretend you didn’t say anything.

But in all seriousness, we should always do the right thing and do what we can to help people in need. So if you know someone who has trouble managing their credit card and personal loan repayments, you might want to tell them about debt consolidation plans.


What is a debt consolidation plan?

A debt consolidation plan, sometimes referred to as a “DCP loan”, is a simple repayment scheme that allows you to bring together all your outstanding unsecured debt (e.g. outstanding credit card bills and personal loans from different banks) into one big loan with just one bank.

The bank that issued your DCP pays off all your outstanding debts, and your unsecured accounts are all closed, so you only need to focus on making that one easy monthly repayment.

Although the consolidated amount might make you break out in cold sweat, what’s good about a debt consolidation plan is that the interest rate is low compared to that of credit cards and unsecured credit lines, which are typically in the high 20’s – as high as 28.88% p.a. these days.

(As anyone who’s struggled with credit card debt can tell you, these crazy interest rates have a serious snowball effect once you’re unable to pay your credit card bill in full each month.)


Where can you get a debt consolidation plan in Singapore?

Debt consolidation plans are being offered by 14 financial institutions in Singapore:

  • DBS
  • UOB
  • OCBC
  • Citibank
  • Standard Chartered
  • HSBC
  • American Express
  • CIMB
  • Maybank
  • RHB
  • Bank of China
  • ICBC
  • HL Bank
  • Diners Club

Each has their own fees and charges, so you should compare as many as you can.


What are the eligibility requirements?

Regardless of which financial institution you get your debt consolidation plan from, there are some basic eligibility requirements.

First, debt consolidation plans are only for Singapore citizens and PRs. You need to have an annual income of between $20,000 and $120,000, and your net personal assets cannot be more than $2 million. (That is, your assets – such as properties and shares – minus liabilities – your mortgage, unpaid taxes, etc. – cannot exceed $2 million.)

Finally, you also need to be heavily in debt enough to qualify. Specifically, your total outstanding unsecured debt needs to be at least 12 months’ salary.

By the way, debt consolidation plans are only for unsecured credit, meaning things like personal loans, personal line of credit, and credit cards. Secured loans like car loans and property loans, as well as need-specific loans like education, renovation or business loans, can’t be consolidated with a DCP.


What’s the total amount under the DCP?

The amount under your debt consolidation plan will be calculated like this: Total outstanding debts + outstanding interest + 5% on top of the total.

The bank issuing the DCP loan charges you the extra 5% not because they want to makan you, but because they need this money as buffer.

Buffer against what ah?

Well, the bank that issued the debt consolidation plan is supposed to pay off your outstanding unsecured debts to the other financial institutions, but this isn’t exactly instantaneous. And as we all know, stuff like late payment fees and additional interest tends to magically appear while you’re not looking. That 5% is supposed to buffer against those extra fees.

Don’t worry, the bank isn’t going to pocket the unused portion and treat their employees to a big bonus next year. The excess will be refunded by the end of your DCP loan tenure.


What happens when you get a debt consolidation plan?

While the DCP issuing bank is busy footing your bill with all the other banks, all you need to do is repay the debt consolidation plan on schedule.

In the event that the amount that the bank is lending you for the DCP is not sufficient to cover all your debts, you need to settle the outstanding credit accounts yourself in order to clear your debts.

By the way, if you come across a better debt consolidation plan, you can also refinance your DCP just like you would a housing loan. Check if there are costs that will be incurred if you do so first. If you decide to jump ship, you must get a settlement notice from your current DCP bank before you “port over”.


What if you don’t qualify for the debt consolidation plan?

That’s a good thing! Hopefully that means your outstanding debt has not reached 12 months’ salary yet.

But that doesn’t mean you’re off the hook. If you’re worried about your credit card debt snowballing, you can still “DIY” your own debt consolidation plan by applying for a low interest personal loan.

This allows you to pay off your credit card bills immediately with the cash, then work on repaying your personal loan at a much lower interest rate than with credit cards.

Know someone who can benefit from this information? Share this with them.


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