The Great Credit Cleanup Checklist 2019

Staying debt-free is ideal but in Singapore, not realistically possible.

Unless you’re lucky to have millions stashed away, buying a home for most people will involve getting a bank loan.

The trick is learning to manage an acceptable level of debt. We share 5 easy steps for you to follow if you’ve got a mounting level of debt or are aiming to get your credit score cleaned up.

Step One: Check Your Credit Score

What is a credit score? It’s a rating for banks to assess you as a candidate for loans. When you apply for loans above $500, most banks will use your credit score to determine how much they are willing to lend you. It’s how banks determine your likelihood of defaulting on loan repayments. A healthy credit score improves your chances of getting a higher loan for a car, house, education or to start a business.

Grades ranges from AA to HH. The highest possible credit score risk grade is AA.

Repayment status may affect your risk grade. Repayment history of B or C means you have history of delinquency or late repayments. Repayment history of D and below are usually the result of loan defaults, where the bank had to write off your loan. If you have bad credit, you risk getting a smaller loan or having your loan rejected.

Singaporeans can check their credit score by obtaining a credit report at the Credit Bureau of Singapore (CBS) for a fee of $6. It’s important to keep your credit score as close to AA as possible.

Step Two: Take Stock Of Your Good And Bad Debt

Contrary to popular belief, not all debt is bad. Good debts are investments with returns beyond the monetary value of the debt and its repayments. Generally, property and assets such as stocks, bonds and gold are considered good debt. Some may consider financial loans for education as good debt too, as the value of education can boost future earning power which makes the debt worth it.

Bad debt, on the other hand, is sunk cost with no other opportunity to generate valuable returns. Incurring bad debts means you risk lowering your credit score, especially if you find yourself unable to pay them off.

Another thing to bear in mind is the new MAS borrowing limit. From June 2019, the revised limitation means the maximum borrowing limit, or the total amount of outstanding unsecured credit is 12 times your monthly income -- down from 18 times. This limit stands even if you have not maxed out your total credit limit across existing credit facilities.

Step Three: Create A Plan Of Action

It’s not easy to pay off debt in full all at once. Setting up a debt repayment plan may make it easier for you to tackle this considerable financial burden in a sustained and manageable way.

Start by making a list of your debts and rank them according to the order you want to clear them. One recommended way is to pay off the smallest debts first before moving onto the larger ones so you gain momentum in debt-clearing. Another way is to prioritize debts from the highest to lowest interest rates incurred and tackle them accordingly.

Another solution is to tackle one debt at a time so you don’t feel overwhelmed. Doing so prevents you from paying more in clearing your debt since you pay less interest over time instead of spreading your dollars over several debts at once.

Step Four: Consider A DCP

When your debt is more than 12 times your monthly income, a debt consolidation plan comes in handy by helping you easily manage multiple debts.

A debt consolidation plan is a government-approved scheme offered by all leading banks in Singapore. The plan consolidates all your unsecured credit loans into one so you no longer have to keep track of separate loans from various banks. This streamlines the debt repayment process while relieving you of the high interest in repayments from various facilities. Bank of China's (BOC) Debt Consolidation Plan (DCP) has one of the lowest interest rates in the market and allows for a loan tenure for as long as 10 years.

Upon approval for a DCP, BOC will settle all your outstanding amounts with various financial institutions and notify them to suspend all your accounts.

The best part? Successful applicants get a complimentary BOC Family credit card upon DCP approval, with the annual fee permanently waived during your BOC DCP tenure. Without any other credit account to rely on in case of emergencies, BOC’s credit card will offer much-needed support for you to manage your expenses.

Taking up BOC’s DCP is one way you can breathe easy with your finances, especially if you’re struggling to settle multiple outstanding debts.

Step Five: Sustainability Is Key

Be realistic, and start cultivating good money habits like always paying your credit card bills in full and on time. Unless you do this, unhealthy money habits will drag you into a vicious cycle of creating more debt time and again. Managing debts is a learning process, so don’t be too discouraged if your debts look like they’ll take forever to clear.

With the right mindset and a plan of action, you can chip away at the outstanding amount that you owe. After your debts are cleared, channel the repayment funds to a savings account with a high-interest rate so you have an emergency rainy day fund.

---

If you need a little help managing your debt, take the first step with BOC's DCP. What's more, enjoy exclusive rates when you apply for BOC's DCP with SingSaver now.

Tenure	Processing Fee	Applied Interest Rate (p.a.)	Equivalent Flat Interest Rate (p.a.)*	EIR (p.a.)
1 year	2%	6%	3.28%	10.02%
2 years			3.18%	8.14%
3 years			3.17%	7.48%
4 years			3.18%	7.15%
5 years			3.20%	6.95%
6 years			3.22%	6.81%
7 years			3.24%	6.72%
8 years		7%	3.86%	7.70%
9 years			3.89%	7.65%
10 years			3.93%	7.60%
*Equivalent Flat Interest Rate excludes processing fee