Being in debt does not just take a toll on your mental and physical health, but can also strain the relationships you have in life. Therefore, getting out of debt as soon as possible should be of utmost priority.
Not sure what you can do? Well, the Debt Consolidation Plan (DCP) in Singapore is one of the options that you can consider to be debt-free quickly.
The DCP is a debt refinancing program that allows you to consolidate all your debts across different financial institutions into one so that you only have to repay one participating financial institution. However, it is important to take into account that certain debts, such as renovation, education and medical loans, are excluded.
Despite being one of the better options for those who are currently in debt, the DCP still has its fair share of misconceptions surrounding it. Hence, we will be addressing them in this article so you can make more informed decisions – read on to find out more.
1. The DCP will cost me a fortune
All DCP participating financial institutions in Singapore charge a processing fee which can range from as low as $0 to a few hundred dollars. While this plays a part in your decision-making process, it is also key to take note of the interest rate each bank offers before committing as this affects your monthly repayment figure. Do your research on both the processing fee and interest rates to see which financial institution’s DCP is the most suitable for you.
2. The DCP will affect my credit score negatively
It is possible for your credit score to take a hit when you first apply for loans from multiple lenders. But by applying for DCP to consolidate your loans and making timely repayments, your credit rating will improve as you reduce your debt-to-credit utilization ratio. Thus, if you are not planning to sign up for a new credit card, chances are your lower credit score at the start will not have any impact. In fact, you should refrain from opening any new lines of credit and use this opportunity to settle your debts and be debt-free quickly.
3. The DCP will land me in debt again
A Debt Consolidation Plan aims to help you ease your repayment process so that you do not fall behind on your monthly payments which can result in a snowballing of your debts. Nevertheless, it is up to you to come up with a robust budgeting plan that will manage your spending habits so you can regain financial freedom as early as possible. As long as you put in an effort, the DCP will definitely not land you in debt once again.
4. The DCP reduces my current debt
This is one of the most common misconceptions about the DCP, but unfortunately, it does not reduce your current debt. Instead, it merges all your debt into one so you can better manage your finances. As there are many DCP options available in Singapore offered by various financial institutions, the rates and benefits offered tend to be competitive. If you choose the right deal, you may potentially save money on repayments and even penalties and late fees that you would otherwise have to pay for all your other unconsolidated loans. However, DCP is only able to consolidate unsecured liabilities incurred through Banks but not for other debts. For individuals who have debts of all kinds, DCP would not be a one-stop solution for them.
5. The DCP has a lower interest rate
Yes, DCP is able to offer a lower interest rate than the rate on your existing debts if your credit is strong. What they fail to highlight is that if you extend the repayment terms, the interest rate can increase so it is always recommended to make timely repayments to pay off your debt faster. Although taking on another loan to pay off your current debts at a lower interest rate seems counterintuitive, the truth is you potentially pay more than your actual owing due to repayment terms and interest rates. In addition to that, not everyone can be eligible for DCP as the total owing must exceed 12 times of an individual’s monthly income.
Find out more about DCP in Singapore
With a better understanding of what DCP offers, you may also be wondering which is the best Debt Consolidation Plan you should go for in Singapore. There are many factors to take into consideration, such as your current debt amount, the processing fee and different interest rates.
Therefore, consider getting in touch with a debt consultancy that will help you to weigh your options and recommend the best course of action.
Here at Debt Aid, we aim to offer our clients personalized solutions that will help them regain financial freedom. Having helped more than 1000 cases since we started in 2018, we are confident that our knowledge and expertise will assist you in repaying your debts in the most feasible way.