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Debt Consolidation Loans: Are They Bad For Your Credit?
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Smart use of credit institutions is an important financial tool for many people. Unfortunately, it can sometimes be a double-edged sword for those who lack the knowledge and attitude to use it wisely, often without fail.
Just as compounding returns encourage wealth creation, diversification – compounding interest on debt – can create a tension that many have great difficulty extricating themselves from.
What Is Debt Consolidation Loan?
It can be a painful situation with long-term financial consequences. This is the direct reason for debt consolidation, especially the Debt Consolidation Policy (DCP) introduced by the Association of Banks of Singapore (ABS).
Debt consolidation is the process of taking all of your unsecured debt—that is, debt you don’t have credit for, such as credit cards and loans—and putting it all in one bucket. one. A common way to do this is to take out one loan and use it to pay off the entire loan.
Now, instead of paying different amounts to different organizations each month, you simply combine them into one monthly payment. Doing this has three major benefits.
● Easy tracking and planning: When you have many different payments to make each month, it can be difficult to keep track of them all. Consolidating your debt into one payment means you know exactly how much you have to pay each month.
How Debt Consolidation Loans Work
● Potentially lower interest rate: You can often find debt consolidation loans with a lower interest rate compared to your debt, especially if it includes credit card debt. This means you usually pay less overall.
● Compulsory Financial Discipline: If you are considering a debt consolidation loan, you already know that you need to improve your financial management and spending habits. Consolidating all of your bills into one easy-to-track monthly payment makes managing your finances easier. This is further reinforced by the conditions set by Singapore’s DCP, which we will cover.
As a financial institution, we have a responsibility to do good for the community. Although lending is important to keep the economy going, we recognize that we still have an obligation to help those in need learn how to use credit responsibly.
ABS launched the DCP in January 2017. Under this scheme, eligible borrowers can consolidate their unsecured debt with one participating financial institution, including Standard Chartered. The DCP complements other debt resolution initiatives such as the credit management program offered by Credit Counseling Singapore and the debt recovery scheme under the Ministry of Law.
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The DCP has received the support of the Monetary Authority of Singapore (MAS), which has taken steps to curb the accumulation of excessive debt. For example, the authority introduced measures to control credit limits in 2015, which prohibits all financial institutions from offering unsecured loans to people with loans that exceed a certain limit.
These rates have decreased gradually since 2015, and as of June 2019 they are now 12 times your monthly income. This means that if your unsecured loans exceed your annual income , you will not be able to get higher or new credit limits or reduce more than the existing facilities.
At Standard Chartered, we do our part by actively participating in the DCP. If you have debt, read the infographic below to learn everything you need to know about this plan.
At Standard Chartered, we can help you manage your debt with our Debt Consolidation Policy loans. click here Contact us today.
Debt Consolidation Loan Singapore
Do you feel like you are drowning in debt? A debt consolidation loan may be just what you need to fix your finances. Learn more about getting a loan under the Singapore Debt Consolidation Scheme here.
Apply for pre-test with just your NRIC and income documents and get up to S$500
This article is for general information only and does not constitute a proposal, recommendation or solicitation to enter into any business or adopt a hedging, trading or investment strategy with respect to securities or other financial instruments. . This article has not been prepared for any individual or group of people and should not be considered investment advice or investment recommendations. It has been prepared without reference to the specific investment plans, financial situation or special needs of any individual or group of individuals. You should seek advice from a licensed or licensed financial advisor regarding the product’s suitability for you, with these factors in mind before committing to any product or investment. If you choose not to seek advice from a licensed or licensed financial advisor, you should carefully consider whether the product or service described here is right for you. You are fully responsible for your investment decision, including whether the investment is right for you. Participating products/services are not particularly protected and you may lose all or part of your initial investment. Standard Chartered Bank (Singapore) Limited accepts no liability or responsibility for the accuracy or completeness of the information contained in this article. Investment products are not deposits and each of the above-mentioned products is not classified as an insured deposit under the Singapore Deposit Insurance and Policyholder Protection Act 2012, Rev. Mr. Cap 77B. Credit 21 Pte. Ltd. is a licensed moneylender (License No. 51/2022) listed in the Moneylenders Registry (No. S/37) under the Ministry of Law, Singapore.
However, you don’t have to struggle with all these loans. Instead, you can combine them to manage your payments.
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Continue reading this article to learn what a debt consolidation loan is, how a debt consolidation loan works, and how much you can borrow.
This is a type of loan that allows you to consolidate all of your debt and credit cards into one low-interest loan.
Once your loans are consolidated, you pay them off as one loan in monthly installments, just like you would your personal loan. You can repay this loan for up to 10 years.
You can apply for a debt consolidation loan in Singapore if you want to consolidate your debts. It is a loan management tool that helps you consolidate your loans.
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Let’s say Lorna has a balance of $40,000 between three credit cards from different lenders and one personal loan. He earns $3,000. The loans are:
From the table above, Lorna needs to pay at least $1,275 a month, which is about half of her salary. Also, the total payment is 12 times his monthly salary.
Lorna can ease this debt burden with a debt consolidation plan. The issuing bank will purchase outstanding balances, fees and charges from Lorna’s four loans. Credit accounts will then be closed and temporarily suspended.
For example, Lorna can get an HSBC loan with a flat interest rate of 3.4% per annum (effective interest rate from 6.5% per annum), payable over eight years.
Everything You Need To Know About Debt Consolidation
This loan will reduce his monthly payments to $562, which is more manageable than the previous amount.
When considering whether you should consolidate your debt, it’s important to use a debt consolidation loan calculator.
This tool helps create different loan packages, their interest rates and repayment plans based on the figures you provide. As a result, you can compare loans from different lenders.
This is because you can change the amount of the loan and the time to receive the monthly payment.
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