Which Is Better – Debt Consolidation Or Personal Loan?


When you have overwhelming debts from many lenders to clear, two common ideas are likely to pop up in your mind – to get rid of the debt through a debt consolidation loan or personal loan.

While both are excellent choices to get cash to clear debts, they work differently, and each is suitable for specific situations.

You’ll find detailed information in this article to help you decide which is better debt consolidation or personal loan.

What Is A Debt Consolidation Loan?

A debt consolidation loan is a special personal loan used to repay outstanding debts from various lenders as a single loan.

Consolidated debt plans offer lower interest rates and fixed monthly repayments, making repayment easier and more flexible.

Debt Consolidation Loan Vs Personal Loan

To answer the question: which is better debt consolidation or personal loan, we need to look at both types of loans closely. Debt consolidation amasses loans from various lenders and well, consolidates them into a single loan.

You’ll make one fixed monthly payment and have one due date to a single lender. The interest rate of the consolidated debt loan is likely to be lower.

On the other hand, a personal loan is an unsecured loan that can work as an alternative to consolidated debt loans. However, personal loans are flexible, as you can use the loan for many purposes other than paying debts.

Furthermore, personal loans have fixed monthly payments and interest rates.

Pros And Cons Of A Debt Consolidation Loan

Personal loans and debt consolidation loans can help you repay many debts from lenders so you won’t have to stress over multiple repayments every month.

However, deciding which is better debt consolidation or personal loan can be challenging since each loan has advantages and disadvantages.


Here are some benefits of a debt consolidation loan.

Lower Interest Rates

Many unsecured debts from lenders attract high interest rates that cut a huge portion of monthly repayments.

But as mentioned, a debt consolidation loan can offer you a lower interest rate. This enables you to save some money that you’d have otherwise used to pay a high amount of interest when paying various lenders directly.

Flexible Loan Tenure

Other unsecured loans might offer short repayment periods that can stretch your finances.

However, consolidated debt plans offer flexible loan tenures, letting you repay easily according to your means.

The longer tenure also reduces the monthly installment amount, allowing you to organise your finances better.

Easy Debt Management

Having several loans from various lenders can be stressful. You have to keep track of every debt, the outstanding debts, due dates, and monthly repayments.

But when you consolidate your loans, you track them all as a single loan. You only make a single payment and have one due date. Thus, you can track and manage your debts easily.

Improves Your Credit Score Over Time

Your credit score report will be updated after you take a debt consolidation loan. If you repay the loan promptly, your outstanding debts will be reduced, lowering your credit utilisation ratio. As a result, your credit score and report will improve in the long run.

Better Repayment Conditions

Debt consolidation plans have a longer loan tenure and flexible monthly installments that make repayment more manageable.


While debt consolidation provides good benefits that can be useful, it also has some downsides that you should take note of before applying for one.

Here are some disadvantages of consolidated debts in Singapore.

They May Attract High Fees And Interest Rates

Banks have different interest rates, as well as processing, prepayment penalty, and origination fees. When combined, these fees can increase the cost of your loan, leaving you with a heftier repayment burden.

Debt Consolidation Doesn’t Guarantee You’ll Be Debt-Free After Repayment

Consolidated debts don’t provide a permanent solution to debts, especially for those with bad spending habits and poor financial management.

This is because even after clearing all the debts with a consolidated plan, they are likely to collect fresh debts, which continues the cycle of bad debt.

Consolidated Debts Require Commitment

While consolidating debts can help you to track and manage them easily, it comes with a price.

Since your credit report updates when you take a consolidated debt loan, you must repay promptly. Failure to do so will cause your credit score to drop.

You may also be charged high late payment penalties.

Pros And Cons Of A Personal Loan


Here are the advantages of taking a personal loan.

Flexibility To Use The Loan However You Want

While other loans are meant for a specific purpose, personal loans are flexible such that you can use the loan without restrictions and monitoring.

Fixed Interest Rates

Personal loans have constant interest rates that allow you to make monthly payments in a more manageable way.

Fast Processing

With personal loans, you can apply, get approved, and have the money disbursed to you quickly. This makes it the best choice if you have urgent financial needs.

Banks take longer than licensed money lenders, which can sometimes give you the money in 24 hours.


Here are the disadvantages of a personal loan.

It Has High Interest Rates

Personal loans have higher interest rates and shorter tenures than other loans since they are unsecured.

It Can Negatively Affect Your Credit Score

Your credit score can be impacted if you frequently take personal loans from banks or financial institutions.

It Can Increase Your Total Debts

While personal loans can clear debts, loans from many lenders can also increase your overall debts.

Furthermore, because you use the loan as you wish, you might misuse it other than pay debts, which may increase your overall outstanding debts.

What To Consider Before Applying

Debt consolidation plans in Singapore are good options for those who want to manage their debts as one. But before you take the loan, you must consider if the loan fits your situation.

Here are some questions worth asking yourself before applying for consolidated debt loans.

What Outstanding Debts With High Interest Rates Do You Have?

A debt consolidation loan makes sense when you have several loans with high interest rates that you want to cut or clear up.

Check the number of high-interest loans that weigh your finances down.

Can You Afford The Monthly Payments?

Consolidated debt plans have fixed monthly installments that must be paid promptly.

If you cannot afford the monthly installments, stay away from debt consolidation loans as you’ll likely default. This will result in penalties and lower your credit score.

Will The Monthly Installments Be Lower Than The Current Ones You’re Paying?

One of the advantages of consolidating debts is to get lower, fixed monthly installments that don’t burden you.

This is due to the low interest rate and longer loan tenure. With fixed monthly installments, you should check the amount of each installment you’ll be required to pay towards the consolidated debt loan.

A consolidated debt loan may not be the best idea if the monthly repayment is higher than the current one.

Do You Have A Good Repayment Plan And Are Financially Disciplined?

Getting a consolidated debt loan can be bad if you have poor spending habits and no financial discipline.

This is because you might fall into debt again, and get into a cycle of bad debt. So before getting a consolidation debt loan, have a good plan and strong intentions to repay promptly and avoid debts.

Where To Get A Debt Consolidation Loan

You can get your debt consolidation loan in Singapore from banks or licensed money lenders.


Banks are the first place to consider for your consolidated loan, especially if you have a good credit score.

Here are the most common banks offering consolidation loans*, their interest rates, and processing fees.

Name Of LoanInterest RateProcessing Fees
UOB Debt Consolidation Plan4.5%0
POSB Debt Consolidation Plan3.58%$99
Citibank Debt Consolidation3.99%0
DBS Debt Consolidation Plan3.58%$99
Bank of China Debt6%$600
Consolidation Plan

*Information correct at time of publication 

Licensed Money Lenders

If you have been denied a consolidation loan from a bank, licensed money lenders are your second option.

Since the Ministry of Law governs them in Singapore, licensed money lenders provide loans with reasonable interest rates and flexible loan tenures.

The advantages of choosing licensed money lenders are the speed of loan approval, and the fact that you can get a loan even with a fair or poor credit rating.

Are You Getting A Personal Loan Or Consolidated Debt Loan?

Personal loans and consolidated debt loans can help you pay for your debts in the long run.

However, when it comes to which is better debt consolidation or personal loan, you should choose one that best suits your needs.

Consolidated debt plans offer low interest rates and monthly repayments. They are also good if you want to clear many high-interest loans quickly.

On the other hand, personal loans are good if you have a poor credit rating and don’t meet the eligibility requirements for consolidation debt loans. They are also suitable if you want flexibility, although you must be intentional about your expenditure.

Licensed money lender BST Credit can lend you the cash you need if you need a fast personal loan.

Apply for a loan today or contact us to get guidance on deciding which is better debt consolidation or personal loan.

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