How Does A Debt Consolidation Loan Work?
Are you struggling to keep up with your monthly loan payments? Are you feeling overwhelmed by all your debt with different lenders? If so, you may want to consider a debt consolidation loan.
A debt consolidation loan can help you manage your debt more effectively and lower the interest rate of your monthly repayments. Debt consolidation also takes the stress off of managing multiple debts from different creditors.
So how does debt consolidation loan work? How can such a loan help you get back on track financially? This article will answer all your questions about debt consolidation loans.
What Is A Debt Consolidation Loan?
Debt consolidation loans are used to pay off other debts. They are typically unsecured loans, meaning they do not require collateral. The terms of the loan depend on your credit score.
The primary purpose of a debt consolidation loan is to reduce the amount of interest that you are paying on your debts.
By consolidating all your debts into one loan with just one lender, you can often get a lower interest rate than you were paying on your individual debts. This can save you a lot of money in the long run.
In addition, the loan also helps you to get organised – and stay organised since all your debts are now consolidated into one loan. By paying your monthly installment on time, you can avoid late payments and penalties.
How Does Debt Consolidation Loan Work?
Debt consolidation loans can be a good option if you have multiple debts at high interest rates. For example, you may have outstanding debts from four credit cards, which you now consolidate into one loan.
This can save you a lot of money in interest payments, which can be used to pay off the loan’s principal or for other purposes.
When you consolidate your debts into one loan, you are only making one monthly payment instead of four separate payments. This can help you get out of debt more quickly and get back on track financially.
You can take out a debt consolidation loan from a licensed money lender in Singapore.
Financial institutions, including some banks, offer debt consolidation plans (DCPs). These have slightly different criteria from debt consolidation loans.
How Much Can You Borrow?
You can consolidate loans from banks in Singapore equal to the total amount of outstanding debts you have. This also includes the other fees and accrual charges for your accounts.
If the debt consolidation loan amount approved is less than what you owe, you will have to make up for the difference with your own savings or by taking out another loan.
For the first debt consolidation loan you take up in Singapore, you can get an allowance of 5% that can be used to pay for any extra fees or costs associated with the consolidation process.
Qualifying Criteria Of A DCP
You need to fulfil certain criteria in order to qualify for a debt consolidation plan. To be eligible for a debt consolidation plan in Singapore, you must:
- Be a Singaporean or permanent resident (PR)
- Have an annual income that is between $20,000 to $120,000.
- Have personal assets with a net worth of no more than $2 million
- Be heavily indebted with an outstanding debt amount of more than 12 times your monthly salary
If you satisfy the above criteria, you may be eligible for a debt consolidation plan in Singapore.
Where To Apply For A Debt Consolidation Loan Or DCP
You can apply for a debt consolidation loan from licensed money lenders in Singapore. Debt consolidation plans are only available from these participating financial institutions:
- 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
If you choose the DCP route, you cannot get a new credit card or loan until your remaining balance drops below eight times your monthly income.
If you don’t qualify for a DCP, there are many licensed money lenders in Singapore that offer debt consolidation loans.
No matter if you have existing loans from these institutions or not, you can apply for their consolidation plans as long as you meet their qualifying criteria.
When applying for a debt consolidation loan with a licensed money lender, you need:
- Your NRIC
- Income statements for the past three months
- CPF contribution history statement for the past 12 months
- Credit bureau reports, confirmation report for due amounts
- Latest bank statements
Once you have all the necessary documents, submit your application online or in person.
How To Apply For Debt Consolidation
Debt consolidation can be a great way to get your finances back on track and reduce your monthly payments. You make one monthly payment to the lender, which in turn pays off the your debts.
Here is a step-by-step guide on how to go apply for debt consolidation:
- Gather all your debts, including credit card bills, car loans, student loans, mortgages, and any other debts you may have.
- Add up the total amount you owe. This will give you an idea of how much money you need to borrow to consolidate your debts.
- Choose the best debt consolidation loan or plan. If you don’t qualify for a DCP, there are a few different types of loans that can be used for debt consolidation, such as a personal loan or a home equity loan. Be sure to compare interest rates and terms between different lenders before choosing one.
- Pay off your debts using the consolidation loan or plan. This will leave you with just one monthly payment to make, instead of several.
- Make regular payments on the debt consolidation loan. Be sure to make all your payments on time to avoid being penalised.
Tips For Debt Consolidation
Debt consolidation can be a great way to get your finances under control and improve your credit score.
However, it is essential to be aware of the risks involved before deciding if it is right for you. Here are some tips on how to go about consolidating your debts:
- Be sure to shop around and compare interest rates and terms before choosing a debt consolidation loan. This will help ensure that you get the best deal possible.
- Ensure you have enough debt that warrants debt consolidation.
- Make sure you can afford the monthly payments on the consolidation loan. If you cannot afford the payments, you may rack up even more debt later.
- Stay disciplined with your spending and make every effort to pay off the consolidation loan as quickly as possible. This will save you money in interest charges and help improve your credit history over time.
- If you are having trouble making the monthly payments on your consolidation loan, contact your lender immediately. They may be able to work with you to lower the payments or extend the repayment period.
Debt consolidation is supposed to make things easier for you. So by following the above tips, you can make the consolidation process work for you and help improve your financial situation.
Be Clear About How A Debt Consolidation Loan Works
Now that you know how does debt consolidation loan work, decide if consolidating your debts is a good option for you.
If so, be sure to shop around and compare interest rates and terms before choosing a debt consolidation loan.
In addition, make sure you can afford the monthly payments on the loan and be disciplined with your spending. A debt consolidation loan cannot change poor spending habits.
If you’re looking for a debt consolidation loan in Singapore, contact BST Credit.
We can help you find the best loan for your needs and make the consolidation process as easy as possible.