For many people in Singapore, having a credit card is a sign of financial independence and freedom. In addition, it is a reasonable way to get rewards and cashback on your purchases as long as you make on-time payments on all of your bills each month. But what happens if you can’t afford to make your payments on time? Your credit card debt may become unmanageable due to exorbitant interest rates and a few late payment fines. Fortunately, other options are still available, and a personal loan in Singapore may be helpful.
All reputable banks in Singapore provide the debt consolidation plan, a government-approved program. Consider a debt consolidation loan if you’re having trouble keeping up with the repayments on your open, unsecured loans, such as credit cards and lines of credit. It consolidates all your open, unsecured credit accounts under one roof, simplifying debt payments and management. The interest rates are lesser than those of a typical personal loan, with only one repayment deadline to remember.
We have created this comprehensive post to help you as you take on the idea of getting a personal loan Singapore to consolidate your debt.
There are two primary ways to consolidate: a balance transfer and a debt consolidation plan. Both work by merging your loan payments into one monthly charge. We will explore other options as well.
A balance transfer
A balance transfer lets you move your outstanding unpaid credit card amount to an account with 0% interest for a few billing cycles, typically up to 6 months. You can decide whether to make a minimum payment of 1% to 3% of the balance due each month. Nevertheless, you must pay the balance after the payback period.
Please remember that there may be a processing fee of 1.5% to 5.5%. While some banks offer balance transfers for three months to 18 months, some offer balance transfers for 12 months. In addition to preventing your credit card bills from ballooning, you can use balance transfers to pay off emergency expenses (such as car repairs and medical bills).
However, if you’re undertaking a balance transfer, ensure you can afford the installments. This is because if you cannot pay back the entire debt before the term ends, you may have to pay exorbitant interest. Here is an illustration:
Suppose you have a S$6,000 debt and a 6-month balance transfer. In that case, you must make the 1% minimum payment equal to S$60 over five months. You must pay the final S$5,700 in the sixth month. If not, the interest rate may return to the original level, which may be as high as 30%.
Here are the benefits and drawbacks of balance transfers that you should be aware of:
Pros
- You can even out your payments over the term by transferring a balance.
- You can avoid incurring exorbitant interest rates when you can’t make your payments promptly. This provides you additional time to pay off the debt.
Cons
- You must pay back the entire sum by the end of the tenure. Otherwise, the 0% interest rate will return to the initial interest rate, which could be rather significant.
A debt consolidation plan
A debt consolidation plan is your next option for debt relief using a personal loan Singapore. The essence is to combine all unsecured credit facilities (such as credit card bills and other unsecured loans) into a single account with a single financial institution, such as a bank. Then you can pay the loan in installments over a predetermined time frame of one to ten years. Depending on the lender and whether promotional rates are available
, there could be a one-time processing fee.
But remember that debt consolidation won’t solve all your debt issues. Only a few things will determine whether debt consolidation is effective. This pertains to your financial condition, whether you adhere to a budget, and whether you have a debt management strategy.
Here are some advantages and disadvantages to think about before getting into a debt consolidation plan:
Pros
- You can obtain an interest rate that is lower than that of unsecured credit lines and credit cards. This lets you repay your loan more quickly by lowering your repayment obligations.
- With a debt consolidation plan, you can organize your finances by making payments only once a month.
Cons
- You can only consolidate unsecured credit. This excludes secured debts like mortgages and auto loans.
- Your unsecured debt must be 12 times your monthly income to qualify. As a result, only individuals with bigger debt can access it.
Personal installment loan
There are other choices to assist you in paying off your debt if neither a debt consolidation plan nor a balance transfer is the best choice for you. Consider getting a personal installment loan if your balance transfer period has ended or you are not eligible for a debt consolidation program. This is a one-time payment you can use to settle any immediate debts before repaying the loan over a predetermined period.
Engage a credit counselor.
Knowing what choices to make and what actions to take can be challenging when you have so much debt to handle. Credit counseling can be helpful in this circumstance since you can receive qualified assistance that can help you better manage your debt. However, remember that credit counseling will still cost you a fee. Furthermore, there is no assurance that a credit counselor will successfully obtain a better deal for you.
Bargain with your lender.
You can always request your lender for an extension or a refinancing plan if you’re struggling to repay your personal loan in Singapore. Note, though, that you may have to pay more for this. Furthermore, be sure to submit your request before the subsequent scheduled payback to avoid any late payment fees.
Final thoughts
Weighing all your options is essential before deciding on the ideal debt repayment option. Ultimately you need financial discipline to ensure timely monthly payments even after consolidating your debt.
