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Everything you need to know about Debt Consolidation

Everything You Need to Know About Debt Consolidation

The judicious use of credit facilities is a useful and strategic financial tool for many people. Unfortunately, it can sometimes be a double-edged sword for those who lack the knowledge and temperament to use it wisely – often through no intentional fault of their own.

Just like how compounding returns drive wealth creation, the flip side – compounding interest on debt – can create a downward spiral from which many find great difficulty in extricating themselves.

This can be a tough situation with long-ranging financial effects. It’s also precisely the reason why debt consolidation exists, and in particular why the Association of Banks in Singapore (ABS) introduced the Debt Consolidation Plan (DCP).

Understanding debt consolidation (and how it helps you with your debt)

Debt consolidation is the process of taking all your unsecured debt, meaning debt that you have not pledged collateral against, such as credit cards and personal loans, and putting them all in a single bucket. The most common way this is done is by taking out a single loan and using it to pay off all your outstanding debt.

Now, instead of paying varying amounts to different institutions each month, you just lump it all into a single monthly payment. There are three main benefits to doing this.

● Easier tracking and planning: When you have so many disparate payments to make each month, it can be hard to keep track of them all. Consolidating your debt into one single payment means you know exactly how much you must pay each month.

● Potentially lower interest rates: You can often get debt consolidation loans at a lower interest rate compared to your outstanding debts, especially if it comprises mostly credit card debts. This means that you usually end up paying a lesser amount overall.

● Enforced financial discipline: If you are considering a debt consolidation loan, then you already know that you need to improve your financial discipline and spending habits. By consolidating all your debts into an easily trackable single monthly payment, financial discipline is easier to uphold. This is further strengthened by the conditions stipulated by Singapore’s DCP – which we will be elaborating on.

Singapore’s Debt Consolidation Plan (DCP)

As a financial institution, we have a responsibility to do good for society. While provision of credit is essential to keep the economy flowing, we also recognise that we have a duty to help those who have yet to learn how to responsibly use debt.

The ABS introduced the DCP in January 2017. Under this plan, qualified borrowers can consolidate their outstanding unsecured debt at a single participating financial institution– including Standard Chartered. The DCP complements other debt remediation measures, such as the Debt Management Programme offered by Credit Counselling Singapore and the Debt Repayment Scheme under the Ministry of Law .

The DCP has garnered support from the Monetary Authority of Singapore (MAS), which has already taken proactive measures to prevent the accumulation of excessive debt. For instance, the authority implemented credit limit management measures in 2015, which restrict all financial institutions from granting further unsecured credit to individuals with borrowings that exceed a certain threshold .

That threshold has been progressively lowered since 2015, and as of June 2019, now stands at 12 times monthly income. This means that if your unsecured borrowings exceed your annual income, you would not be able to get higher or new credit limits or draw down further on existing facilities.

At Standard Chartered, we are doing our part by actively participating in the DCP. If you are struggling with your debt load, read the infographic below to learn everything you need to know about this plan.

At Standard Chartered, we can help you manage your debt through our Debt Consolidation Plan loans. Click here to. Contact us today.

Do you feel like you are drowning in debt? A debt consolidation loan may be what you need to get your financial house in order. Learn more about getting a loan under Singapore’s Debt Consolidation Plan here.

¹https://www.ccs.org.sg/services/dmp/

²https://io.mlaw.gov.sg/debt-repayment-scheme/about-debt-repayment-scheme/

³https://abs.org.sg/docs/library/faqs-credit-limit-management-measures.pdf

Disclaimer

This article is for general information only and it does not constitute an offer, recommendation or solicitation of an offer to enter into any transaction or adopt any hedging, trading or investment strategy, in relation to any securities or other financial instruments. This article has not been prepared for any particular person or class of persons and does not constitute and should not be construed as investment advice or an investment recommendation. It has been prepared without regard to the specific investment objectives, financial situation or particular needs of any person or class of persons. You should seek advice from a licensed or an exempt financial adviser on the suitability of a product for you, taking into account these factors before making a commitment to purchase any product or invest in an investment. In the event that you choose not to seek advice from a licensed or an exempt financial adviser, you should carefully consider whether the product or service described herein is suitable for you. You are fully responsible for your investment decision, including whether the investment is suitable for you. The products/services involved are not principal-protected and you may lose all or part of your original investment amount. Standard Chartered Bank (Singapore) Limited will not accept any responsibility or liability of any kind, with respect to the accuracy or completeness of information in this article. Investment products are not deposits and each of the investment products mentioned do not qualify as an insured deposit under the Singapore Deposit Insurance and Policy Owners’ Protection Schemes Act 2012, Rev. Ed. Cap 77B.