Debt consolidation reduction – This Is How It Works
Credit facilities can be extremely beneficial if you know how to practice financial discipline. However for those who have a harder time keeping track of overdue payments, falling right into a debt trap is inevitable. Taking on more loans to settle existing dues is no doubt a poor financial decision, however when you are neck-deep in high-interest debt, it might often seem like the only way out of financial trouble. Many of the true in the case of unsecured loans, high is no collateral that the lender can depend on to stay overdue payments.
If you're experiencing multiple debt payments lined up one following the next, you may be perplexed concerning how to resolve this financial circumstances. Fortunately, Singapore's financial ecosystem comes with an effective Debt consolidation reduction Plan (DCP) crafted precisely with this scenario.
What is debt consolidation, though? And how do you use it? Those are just the items we intend to explore here.
What Is Debt Consolidation?
Debt consolidation is essentially the financial practice of combining multiple loans and liabilities by availing a brand new loan to pay off several other smaller ones. Typically, the ideal way to carry out this is to opt for a new, low-interest loan to consolidate several high-interest liabilities, so your immediate and ongoing expenses reduce in the long run. The new debt could also include a number of other favourable terms just like a longer tenure minimizing monthly EMIs.
What May be the Debt consolidation reduction Plan (DCP)?
The DCP is really a managing debt solution which was created by the Association of Banks in Singapore (ABS) in 2021. This tool came in a time when around 4,000 Singaporeans suffered unsecured debt levels which were 12 times their monthly income or higher every month, typically. The DCP was created specifically for Singapore's Permanent Residents who were juggling multiple unsecured, high-interest debts.
The official Debt Consolidation Plan in Singapore is formed for people whose outstanding debt is at least 12 times their monthly salary.
How Does Debt consolidation reduction Work?
To truly understand the benefits of the DCP, you should know how debt consolidation works. And there's no better method to understand finance rather than look at a practical example that may clear things up.
Here are a few observations of interest:
- Alex's total outstanding balance comes up to $53,000, which is over 13 times his monthly salary of $4,000.
- To keep up with his debt, he pays no less than $1,685 monthly, that is nearly half his monthly salary.
Instead of struggling to repay these debts, with interest charged on interest, Alex can resort to the Debt Consolidation Plan in Singapore to combine many of these high-interest loans and swap them out for a low-interest debt. The financial institution that Alex chooses to avail the DCP facility shall buy out each one of these high-interest charge card debts and the personal bank loan, as well as in exchange, it shall extend a low-interest (personal) loan to Alex.
For instance, assume that the new loan comes in an interest rate of 8% p.a. and express it has a tenure of Ten years. If so, according to the consolidated debt, Alex only must pay interest at 8% p.a. for a fixed tenure. This makes it easier for him to stay his liabilities without snapping under the burden of the debt trap.
Some Items to Know About Debt Consolidation
Before are applying for any debt consolidation loan in Singapore, here are a few important things to keep in mind.
- Debt Consolidation Plans can be found simply to Singaporeans and Permanent Residents
- Salaried employees with annual incomes between $30,000 and $120,000 qualify for the plan
- Unsecured outstanding balances must be at 12 times the monthly income of the applicant
- The tenure from the DCP varies from one lender to another, with most of these offering options between 1 and 10 years
Opting for a Debt Consolidation Plan's easy. There are lots of lenders who offer these options. It is simple to do a comparison on Lendela and pick the offer that helps you consolidate your loans in the most efficient manner. All that you should do is complete an easy application that's delivered to several finance companies and banks, who will review your application and get in touch with you using their offer if you qualify. You can then choose the financing option that most closely fits your requirements. It is that simple!
So, if you are weighed down by a lot of unsecured debt, it might be time for you to think about a Debt Consolidation Plan, so that you can settle your liabilities quickly and with little trouble.
Lendela is an online platform that can help you find the best personal bank loan in Singapore.