Multiple loans are pooled together into one large debt, and in a pile of unresolved debts? You may wish to consider a debt consolidation loan.
What is Debt Consolidation?
Debt consolidation is a form of loan taken to pay off many other consumer debts. These forms of loans do not get rid of your debt; they just transfer all liability to a different lender as a lump sum.
It can be a good payment plan for individuals who may have challenges managing the different loan types they owe. These are for individuals that would like to get rid of high-interest outstanding balances from credit cards.
In Singapore, there are several financial institutions that offer individuals a chance to access the consolidation loan facility. This loan type helps take away a lot of stress and financial strain, and you can pay off all your debtors from your monthly income and focus on repaying a single loan amount.
Debt consolidation plan provides the consumer with the chance to consolidate all his unsecured credit facilities including credit cards and several varieties of short term loans throughout different loan companies. As you look for debt settlement options, below are the pros and cons of consolidated loans that will help you in deciding whether this form of loan is best for you.
Pros Of Debt Consolidation
1. You only need to make a single monthly payment.
To consolidate debt, your monthly contribution is reduced to a single payment which minimizes the chance of late or missed payments. Additionally, dealing with credit facilities or creditors means writing only one check, thus saving you a lot of time and energy.
In understanding the tenure on other loans and credit card debt, an individual is able to consolidate their outstanding into low percentage rates, making it easy to pay off and truly make noticeable progress.
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2. Save money in the long run
When consolidation loans are well managed, an individual can end up saving some money from their monthly income or in their budget instead of spending the entire monthly earnings on bills.
3. The ability to manage your debts properly
When a borrower is hardly making payments every month due to low income, a debt consolidation loan will assist in your catching up on your payments and even getting ahead. This will help take the financial stress off your finances.
Cons Of Debt Consolidation
1. There is the potential of getting into more debt
Having a single payment will mean more funds are available to you. For some individuals primarily gamblers, however, it means having more to spend thus getting themselves further into more debt.
2. Even with the lower interest fees, there is a possibility of taking longer to repay your debt
This, in the long run, will mean you pay greater interest. To avoid this, you can stay focused and pay off your debt as fast as you can.
3. Some slip back into poor financial practices
Some borrowers, thinking that their financial woes are over, lose sight of their objective to pay off their loan and financial burden for good. Debt consolidation becomes a con when borrowers aren’t keen on respecting the process and improving their lives using the service.
By failing to stick to your payoff arrangement, you might end up with more loan than before.
On some occasions, some creditors agree to remove penalties and any added interests once you consolidate your debt. However, when you fail to make payments as agreed upon, the penalties and benefits will be brought back.
4. The possibility of falling into bad habits remain
Although a borrower has received some relief from their finances, it does not mean they have got hold of their spending habits. To avoid getting back in financial struggles, the borrower can learn new money management skills which will go along way in cultivating better spending habits.
How to Consolidate Debt Without Hurting Your Credit
Many people who are facing financial problems have a hard time finding out how to consolidate credit card outstanding without hurting their credit. If you are also one of them, then you should not feel bad because this is the situation that every Singaporean is facing these days.
Consolidating your credit card outstanding is the most common way to get out of debt. When your debt goes into the negative figures you can consolidate it and pay off the bills that you can’t afford. Most people have bills that they can’t afford to pay each month, which makes consolidating the debt harder for them.
There are two main methods that can be used to consolidate debt. You can take a loan to do this or you can use a debt consolidation company to do it for you. A loan will usually require you to pay a lump sum of money upfront and to make regular payments, this makes it easier for the creditor to collect their money.
On the other hand, a debt consolidation company will help you negotiate with your creditors and will help you to write out an arrangement for you to pay off your debts over a longer period of time. With a loan, you have to know how much you owe and what type of debt consolidation loan you need before you can even consider applying for a loan.
With a debt consolidation company, all you have to do is fill out a short form and they will be able to offer you the loans that you need to get out of debt.
There are a lot of benefits to both methods but for most people, a loan is the best choice. However, you should always remember that if you can’t afford to make the monthly arrangement that you have to pay to your creditors then you will be in more debt than you were before.
With a loan, you are in control and you are in charge of when you want to make your payments. With a debt consolidation company, you are not in control and they are in charge and they make the decisions for you.
Debt consolidation loan plan terms and conditions
When it comes to the terms and conditions of the debt consolidation plan, your credit score, your repayment history, and your income are the three factors that will decide whether you will be accepted or denied the loan.
What you need to understand about debt consolidation plans, about their terms and conditions when applying for a mortgage is that the lender cannot grant you a loan without a credit check. You have to prove your reliability by providing your current and previous credit report to your lender before you can apply for a loan.
That is why the terms and conditions are important. This information will enable your lender to identify the credit risk factor, which is common in Singapore today.
Where Can You Get Debt Consolidation Loan In Singapore
Singapore was one of the countries affected by the bad economy, which saw an increase in borrowers. Following the recession, many Singaporeans have been submerged in debt which they want to be paid off within the shortest time and at lower interest amounts.
The introduction of the debt consolidation facility has been viewed by many as a God-sent intervention to help them pay off their debt, especially for low-income earners. This debt repayment helps in tracking the monthly fees, which have been reduced to a single repayment amount. Besides, lower interest fees make the repayment period less than it was with multiple creditors.
In Singapore, several financial institutions offer this type of loan service. These include:
1. Banks
In Singapore, this is designed to bring together loans that are over 12 times more than your monthly income.
Only Permanent residents and Singaporeans, with outstanding debt balances of 12 times more than their monthly earnings can apply for this loan facility.
If you decide to switch to other banks, you can only do so three months after the approval of your latest scheme.
Once in a debt consolidation scheme, all your existing unsecured debts and credit cards are suspended. You will, however, be issued with a revolving credit offer corresponding to your monthly salary.
2. Moneylenders
As banking institutions, moneylenders are open only to Singaporeans and permanent residents.
- You are required to be between ages 21 and 65
- You are required to earning a minimum income of above S$20,000 per year
- You are required to produce your identity card during the application.
Moneylenders openly provide debt consolidation services to borrowers. Similar to financing, they’ll ask for both income and employment proof from you. In doing so, they can approve your debt consolidation amount and deal with your bank directly.
Keep in mind: moneylenders still require you to pay the full loan amount but with manageable interest rates this time. In doing so, you are at no risk to have inflating debt as long as you pay it regularly.
Alternatives to Debt Consolidation
If you have bad credit scores, debt consolidation is the best way to gain the trust of Singaporean banks. On the other hand, if you’re just struggling to pay your debts, you can use debt management services.
Most trade unions and companies have debt management partner companies that can help customers manage their outstanding debts.
Without involving debt consolidation services, employees can finish their financing by way of proper payment management.
However, here are a few alternatives to debt consolidation services:
1. Get Additional Income
You can do side work through online work-from-home part-time occupation options. If you have time, these are perfect options for you. Furthermore, you can use other online means to gain income, such as building and creating content for your YouTube channel or blog.
Additional income might not rival your current income, but they supplement your payments enough that you can cover your interest amounts and finally pay your loan back in full.
2. Sell Properties of Value
Banks and financial institutions give borrowers the option to absorb their valuable collateral properties.
A part of your property’s equity is often enough to meet your payment amount plus interest. In doing so, you have enough to start over and pay the remaining regular balance of your loan.
Smartphones, gadgets, and jewelry are collateral that some banks and financial institutions accept. Make sure to consult with them before using this option.
Conclusion
Debt consolidation loan in Singapore is a type of loan that combines all your existing loans in a single loan. The single repayment means you are able to manage your finances easily and even have some extra for your saving every month.
Always look at the effective interest rates before applying for any loan. This is also known as the annual percentage rate. In the event, you meet the criteria and have been approved for the loan amount by any credit facilities or a bank.
Always make sure to comprehend the loan tenure. Pay attention to their terms and conditions like interest rates. You need to know your annual income to make a monthly repayment scheme.
Debt consolidation loan helps you make lower monthly contributions with low-interest rates. This helps you only focus on a monthly contribution and thus have less financial strain.
Debt consolidation loan helps negotiate with your creditors for penalties and interests to be removed, making your loan amount lower. In Singapore, banks and moneylenders offers this loan facility.
