What Is A Debt Consolidation Loan?
If you owe multiple debts such as credit card loans, renovation loans, bridging loans and other personal loans, managing your debt can be challenging.
You could run into a situation of multiple high interest rates, not having enough income to finance all your debt, or forgetting to pay off some debts, leading to more debt.
For some reprieve and to hasten your journey to becoming debt-free, you may choose to combine all your loans into a single loan. This is what is known as debt consolidation.
In this article, we’ll explain what is debt consolidation loan, and how you can get started with debt consolidation today.
What Is Debt Consolidation Loan?
A debt consolidation loan is an unsecured loan that combines all your existing unsecured loans into one.
This means you don’t have to settle different creditors, at different interest rates, and on different dates.
Your loans are combined as a single loan and financed monthly at a much lower interest rate than prior to the debt consolidation.
A debt consolidation loan allows you to manage your debts, saves you time and money, and gives you psychological relief from managing multiple debts.
How It Works
Owing multiple loans across multiple loan providers can get messy really quick. Think missed payments, multiple exorbitant interest rates, late payment fees, and more.
This can also place a strain on your mental health, creating more problems for you because now you have to worry about your well-being too.
However, with a debt consolidation loan in Singapore, you can combine all your loans into a single loan with just one loan provider.
This means all your bank loans, and loans from money lenders or other sources are now handled by the loan provider.
Your new single loan is serviced with monthly installments and interest rates, but in a structured manner and repayment schedule that is convenient for you.
In other words, you no longer have to keep track of multiple loans and run the risk of missed payments, or other consequences associated with multiple debts.
When You Should Opt For Debt Consolidation
Managing multiple debts at the same time is like chasing multiple rabbits at once – you just might end up losing all of them.
With different interest rates, different repayment dates, and different loan providers, before you know it, you’re either focusing on paying off the most pressing debt or unintentionally skipping repayments.
This only creates more debt problems for you.
In some other instances, your income may drop for some reason, and you’ll find it difficult to meet all your debt repayments.
Don’t forget about the psychological or mental toll this places on your health.
If it has become overwhelming to track all your debts and pay them off as and when they are due, it may be time to opt for debt consolidation.
There are various loan providers offering debt consolidation loan services. Shop around, and find one that is the right fit for you.
Pros And Cons Of A Debt Consolidation Loan
Consolidating debts into a single loan has its pros and cons.
It’s your duty to weigh each side carefully and make the right decision to consolidate your debts or not.
5 Pros Of A Debt Consolidation Loan
Here are some of its advantages.
1. Easy Repayment
Imagine the sigh of relief you’ll give when you no longer have to track multiple loans and deal with multiple creditors.
Consolidating debts helps you take control of your finances by paying a single monthly payment to just one loan provider.
2. Could Save You Money
The interest rate post-debt consolidation will be much lower compared to what you would otherwise pay servicing all your debts at the same time.
Take, for instance, credit card debts that have higher interest rates than conventional loans.
Consolidating those debts with a personal loan offers a lower interest rate and saves you money in the long run.
3. Improves Your Credit Score
Having multiple loans and making late payments negatively impacts your credit score. This affects your ability to borrow in the future.
With debt consolidation, you can stay on top of your debt, pay it off on time, and consequently improve your credit score.
4. Longer Repayment Schedule
With debt consolidation, you get the luxury of a longer repayment period – usually tw to 10 years depending on the loan provider.
With enough time, you can conveniently pay off your debt without stress.
5. Reduced Stress
Worrying about tracking and paying off multiple debts can negatively affect your mental health. Consolidating debts into a single loan helps reduce your stress levels.
3 Cons of A Debt Consolidation Loan
Here are some disadvantages of a debt consolidation loan.
1. It Can Be Costly
Some debt consolidation loans can come with upfront fees such as transfer fees and closing balances.
In addition, other creditors may charge you for early cancellation or late payments. These costs will be borne by you.
2. A Longer Repayment Period Might Not Be A Good Thing
Think of it this way: the longer you take to repay your debt, the longer you have to keep paying interest fees.
In the long run, you’ll pay more interest combined. To solve this, pay off your debt as fast as possible.
3. Doesn’t Change Bad Spending Habits
Taking out a debt consolidation loan may not change your negative money habits.
If you’re a gambler, spend excessively, or can’t manage your finances properly, you’ll create more debt problems.
Some people who have taken out a debt consolidation loan slip back into bad money habits when they assume their debts have been paid.
Make sure this doesn’t happen to you.
Where To Get Debt Consolidation Loans
If you’re looking for where to take out a single loan to consolidate your debt in Singapore, there are two options available to you – banks and licensed money lenders.
Banks offer debt consolidation plans to help debtors manage their debt better. Currently, there are 14 banks in Singapore that offer debt consolidation.
While different banks will have their own criteria for eligibility, the common criteria for eligibility are:
- You must be a Singapore citizen or permanent resident between 21 to 65 of age
- Your total unsecured debt balances exceed 12 times your monthly income
- You earn between $30,000 and below $120,000 annually, with net personal assets of less than $2 million
Banks usually have a longer repayment period – up to 10 years.
You can switch to a different bank to handle your debt consolidation only after three months from the approval of your last scheme.
But keep in mind that not all unsecured loans can be consolidated by banks. Loans that are excluded include:
- Education loans
- Renovation loans
- Business-related credit facilities
- Medical loans
- Loans granted under joint accounts
Once a bank approves your debt consolidation application, all other unsecured loans are suspended.
Automatically attached to your debt consolidation plan is a revolving door credit facility that gives you a credit limit capped at 1x your monthly income.
This credit facility is given to help you meet your daily expenses.
Note that it comes at a fee, but you don’t have to take it out if it isn’t needed.
Licensed Money Lenders
There are debt consolidation money lenders in Singapore that are willing to advance you a loan to consolidate your debts.
To grant you a loan, they will require your latest income statements and an identity document.
Licensed money lenders also have some basic criteria you must meet such as age requirement, and level of income.
A debt consolidation loan will be granted or rejected depending on whether you meet their criteria.
The interest rate money lenders can charge on your new single loan is capped at 4%. All types of unsecured loans can be consolidated by money lenders, including unsecured loans not accepted by banks.
Money lenders also offer shorter repayment periods from one to three years to help you pay your loan off quickly.
Consider Getting A Debt Consolidation Loan Today
Forget about keeping track of all your loans, or missing repayment dates. BST Credit offers debt consolidation loans at competitive rates, and some of the most convenient repayment structures.
Struggling with debt can be hard.
Let us help you embark on a path to being debt-free today. We have loan experts that are ready to sit with you, discuss your needs, and come up with the best debt consolidation plan for you.
What Is Debt Consolidation Loan?
A debt consolidation loan combines all your unsecured loans into one single loan. You never have to lose track of all your loans, or miss payment dates. You need only pay one creditor at a lower interest rate.
What Type Of Loan Can I Consolidate?
At BST Credit, we consolidate all types of unsecured loans.
What If I Already Have A Debt Consolidation Loan? Can I Refinance My Loan?
Yes, but only after you obtain a settlement notice from your existing financial institution. Your refinancing application will contain the outstanding loan balance and accrued interest. This is the amount that BST Credit can allow you to refinance.
What Documents Do I Need To Apply For The Loan?
Singaporeans and permanent residents will need their:
- Income statement (from banks or CPF)
Foreigners will need their:
- Employment pass
- Proof of residency
- Bank statement
How Long Before My Loan Is Approved?
If you have all your documents in place and meet the eligibility criteria of BST Credit, your loan can be approved in less than an hour.
What Eligibility Criteria Does BST Credit Require?
To be eligible to apply for a loan, you must be:
- A Singapore citizen, permanent resident, or foreigner residing in Singapore
- You must have outstanding multiple debts you want to consolidate
You must have an annual income of at least $20,000