Debt Consolidation Plan: What Is It and How Does It Work



There is only so much that one can do with trying to keep up with several repayments as well as fixated bills that are due. At times, these financial commitments can put you into a significant pressure.

Some people will even be borrowing from another lender in order to settle their debts. This way, you will just end up in an endless spiral of debts without you realizing. It is important that one is aware of the most appropriate choices they have out there.

The headache of keeping track with your due payments can easily be better managed through a debt consolidation plan.


What is a Debt Consolidation Plan?

A debt consolidation plan (DCP) is a plan of merging all your unsecured credit services such as your credit cards and Singapore personal loans from all of your creditors into one loan. Instead of you having to keep track of all different kinds of loan to repay, quantifying interest rates and payment owed, DCP makes it simpler and more manageable for your repayment progression through a single loan only.

It is undeniably a convenient debt management tool that allows you to combine credit card debts on top of personal loans that are abounded. Plus, it changes it into a loan with an interest rate that is within your means. As a debtor, you will repay the loan in an automatic monthly repayment for up to 10 years’ time.

In a nutshell, DCP is a device that aids you get a stronger and focused grasp of all your debts and make it into a commitment that is burden-less to your financing.

Additionally, DCP was firstly announced by the Association of Bank in Singapore (ABS) in the year 2017. The system of how things are meant to work in the plan are precisely designed for Singaporeans and Permanent Residents who are in keeping uo up with several high-interest unsecured debts.

In spite of everything, it is worthy to keep note that DCP is only for settling unsecured credit facilities like credit cards, personal loans and credit lines. There are other types of unsecured loans that are not eligible to be joint in your DCP which are education loans, renovation loans, joint accounts and credit facilities for businesses.

A DCP is highly recommended for you only if you are in a situation of dealing with an outstanding debt that is more than 12 times your current monthly pay. Debts that are smaller in number would best suited with a balance transfer or a personal instalment.


How Does a Debt Consolidation Plan Work?

For a clearer picture, let us take the example of Johanis, who is paid of $3,000 per month. Johanis now has an unsettled balance of $40,000 of a personal loan and three other credit cards from different banks.

  Outstanding Balance Interest Rate Minimum Payment
Credit Card 1 $15,000 26% p.a.    $450
Credit Card 2 $10,500 25% p.a.    $315
Credit Card 3 $8,000 25.95% p.a.   $240
Personal Instalment Loan (24 months) $6,500 11.32% p.a.   $270


Johanis is finding it hard to repay all the different loans with different due dates. Not only that, she is hassling in repaying the minimum payment amount that is $1,275 monthly. That is a significant part of her salary. Looking at present numbers, her outstanding balance is already more than 12 times of her monthly pay.

At the moment, she is committing to settling $9,336 merely for interest annually. Due to the interest rate on her credit card debt that constitutes the balance, it would take her longer than ten years to finally pay off her debts.

A DCP could easily help her merge all of these unsecured loans into a single loan. With that, the chosen bank that serves Johanis assistance in regard to DCP plan that is customized for her circumstance, they will ‘buy’ all of her outstanding balances, fees and charges that are payable from her credit cards loans from all creditors.

Keep in mind that for a certain amount of time, these accounts will be temporarily suspended.

This way, Johanis will only be committed to repay the one bank that assists her with DCP every month, instead of several creditors.

As an example, if Johanis’s DCP from HSBC require her to bear a flat interest rate of 3.8% p.a. (EIR from 7% p.a.) for the course of 8 years, table below shows the amount that she will be due to every month in comparison to her previous repayment commitment.

  Current Payment Debt Consolidation Plan
Total outstanding balance $40,000      $42,000 (including fees and 5% allowance)
Interest rate 26% p.a.

25% p.a.

25.95% p.a.

11.32% p.a.

3.8% p.a (EIR from 7% p.a)
Total monthly repayment $1,275        $571
Total interest payable over 1 year $9,337        $1,602
Total interest payable over 8 years $74,964      $12,816


It can be clearly seen that Johanis’s monthly repayments have dropped in number. Plus, she would only have to keep track of her payment towards one creditor. With this manageability, if she could maintain her consistency to her monthly repayment when it is due, she will be wholly free from debts in just 9 years’ time. Not only that, she could save up to $60,000 solely on interest.

With DCP, you are able to choose your loan tenure within the set limits beforehand. In many situations, credit cards in Singapore entails you to pay 3% of outstanding balance. If you are unable to do so, you will be charged with late payment fees, hence, adding up your debts unnecessarily.  

One thing to keep in mind; there is a possibility you would be paying for higher interest as time goes by. So, it is advisable that you do not devote to your DCP for longer than it actually is. Also, if you can afford, you could make higher monthly payments.

Additionally, you are not permissible to use your current unsecured credit facilities during or after you apply for a DCP. The reason for this is that the latter amount of credits used cannot be consolidated.


How Much Can You Borrow from a Debt Consolidation Plan?

Generally speaking, you will be lent a DCP amount that is similar to your existing total outstanding balance. It would include fees or charges you have accumulated that are coherent in your statement of accounts.

Occasionally, a debtor’s approved DCP might not be enough to repay the sum of outstanding balance. If this happens, you may directly pay the excluded balance to the creditors that you have borrowed from directly.

Furthermore, you will be given a supplementary allowance of 5% past the total of the DCP value. It is a part of the debt consolidation plan terms to help deal with any probable charges you might have to bear starting from when you got your DCP approval until the time you get your DCP funding money.

Further, 5% of the allowance will be straight away allocated to the creditors you borrowed from. It is not allowed to be placed in any of your own savings or current account. However, if there is a remaining of the amount, it will then be refunded to your own account.

In Singapore, there are some financial organizations that equip their DCP services with a complimentary term to support you in committing to your payments despite unexpected emergencies.

Also, if you are dismissed from your post and forced to quit from your job unwillingly, the insurance plan will secure the minimum payment due every month for 6 months.


Who Qualifies for a Debt Consolidation Plan in Singapore?

First and foremost, debt consolidation plans are only offered to Singaporeans and Permanent Residents.

One is required to have a job that pays approximately from $30,000 up to $120,000 annually. Moreover, you should have an interest-bearing outstanding balance on any unsecured credit facilities that is like your minimum of 12 times of your monthly income.

You can only have one DCP activated in one time. Following 3 months after that, you will be allowed to refinance your existing DCP with another bank that is listed in DCP services if you get a better interest fee.

It is also important to note that you are not to apply for a new credit card or any loans when you have a DCP activated. Only when your outstanding debt reaches a scale that is less than 8 times of your monthly salary that you may do so. This is to ensure you are fully focused on paying off your debts.


loan application form with approval

Where Can I Get a Debt Consolidation Plan in Singapore?

At present, there are total of 14 participating financial institutions (FI) in Singapore:

–       American Express International, Inc.

–       Bank of China Limited Singapore

–       CIMB Bank Berhad

–       Citibank Singapore Limited

–       DBS/POSB Bank Ltd

–       Diners Club Singapore Pte Ltd

–       HL Bank

–       HSBC Bank (Singapore) Limited

–       Industrial and Commercial Bank of China Limited

–       Standard Chartered Bank (Singapore) Limited

–       Maybank Singapore Limited

–       Oversea-Chinese Banking Corporation Limited

–       RHB Bank Berhad

–       United Overseas Bank Limited

You may apply to activate your DCP from any of the financial institutions above that suits your condition and affordability. Nonetheless, different banks or different financial establishments will have their own terms and conditions as well as their own rates for DCPs.


How can I Apply for a Debt Consolidation Plan?

You may apply for your debt consolidation plan with any institution of your choice that you think best suited for you. It can be done online through their website or you may directly visit their nearby branch.  

Before applying for your debt consolidation plan, you should make sure that you have all of the following documents ready:

–       Photocopy of your NRIC (front and back)

–       Latest Credit Bureau Report

–       Latest Income Documents

–       Latest credit card and unsecured loan statements

–       A confirmation letter that shows unbilled balances for your unsecured credit card and instalment plans



All in all, a debt consolidation plan is surely a beneficial tool that helps you manage your high-interest debts. This could be one of or the one and only instrument that is best suited for your circumstance in the time being. It helps make things easier and simpler for your outstanding credit card bills together with your personal loans.

Combining all of the due payments into one single loan, one could save up money by diminishing steep interest costs.

It may sound like an insensible thing to do for someone who is already stuck in a ravine full of debts. It also may sound like it will likely pile up even more interest costing to your already quite high interest expenses to bear.  

However, a debt consolidation plan fully aids in making a debtor to have a hold of their debts and making them finish off their repayments.

Be that as it may, if you insist on not making changes to your usual spending habits, a DCP might be a disastrous means that adds even more burden to your financial responsibilities.

We highly encourage you to first research and read about the institutions that give DCP services for you. This is so that you are certain and wise in making your choices.

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