Singaporeans struggling with debt can soon apply for a debt consolidation plan to help them repay their unsecured loans.
According to the Association of Banks in Singapore (ABS), Singaporeans and Permanent Residents can soon access a new debt management tool to help them repay their debts arising from unsecured facilities, such as credit cards, personal loans and overdrafts.
The new tool, called the Debt Consolidation Plan (DCP) will allow overextended Singaporeans to consolidate their unsecured debts across multiple financial institutions into a singular repayment scheme.
In practice, this means that the bank providing the DCP will “buy over” all outstanding balances, fees and charges payable from the borrower’s existing accounts with other banks or financial institutions. These other accounts will then be temporarily suspended or closed.
Easier Debt Management
The DCP helps those in debt manage their monthly payments by eliminating multiple payment cycles, which can be difficult to keep track of. The DCP will also help reduce borrowers’ monthly repayment obligations.
In addition, the closure of extraneous accounts reduces overall interest rates by preventing more borrowing.
To help DCP users manage daily transactions, an unsecured credit of 1 month’s salary will be made available.
Under the DCP, borrowers will be allowed up to 10 years to pay down their consolidated debt.
For Singaporeans and Permanent Residents Who Are Heavily Indebted
The DCP is open only to those who are heavily in debt - i.e., with unsecured debt totaling more than 12 times their monthly salary.
Only Singaporeans and Permanent Residents with an annual income of between S$30,000 and S$120,000 and net assets of less than S$2 million are eligible to apply for the DCP.
Borrowers may have only 1 DCP active at any one time. They may seek to refinance their existing DCPs with another participating bank after 3 months.
The DCP does not permanently prevent borrowers from using unsecured credit facilities. Once total outstanding debts falls below 8 times monthly salary, a DCP user may apply for new credit cards or loans from other banks.
Should they wish to borrow from their debt consolidating bank, they will need to first reduce their debt to 4 times monthly salary or less.
These applications are subject to risk assessment and prevailing regulations.
Preparation for New Borrowing Limits
The DCP is also designed to help heavy borrowers who are likely to be affected by new industry-wide borrowing limits that will gradually be phased in.
At present, an eligible borrower may borrow up to 24 times their monthly income. This will be reduced to 18 times come June 2017.
Eventually, the borrowing limit will be reduced to 12 times of monthly income by 2019.
Readily Available Across All Banks by 23 January 2017
The DCP will be launched on 23 January 2017.
Singaporeans may apply for the DCP at any one of the 14 participating financial institutions: American Express; ANZ; Bank of China; CIMB; Citibank; DBS; HSBC; Industrial and Commercial Bank of China; Standard Chartered; Maybank; OCBC and UOB.
You can use SingSaver.com.sg to compare debt consolidation plans from HSBC, Citibank, and other financial institutions.
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By Alevin Chan
A Certified Financial Planner with a curiosity about what makes people tick, Alevin's mission is to help readers understand the psychology of money. He's also on an ongoing quest to optimise happiness and enjoyment in his life.