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A Debt Consolidation Plan (DCP) allows you to combine existing unsecured loans into a single loan with a lower interest rate and longer tenor. You then repay this loan in automatic monthly payments, similar to a personal instalment loan, for a tenor of up to 10 years.
A DCP can only be used to consolidate loans from unsecured credit facilities like credit cards, credit lines, and personal loans. However, certain unsecured loans like renovation loans, education loans, joint accounts, and credit facilities for businesses are not eligible for a DCP.
This new debt management tool was launched in 17 January 2017 by the Association of Banks in Singapore, to specifically help Singaporeans and Permanent Residents who are juggling multiple high-interest unsecured debts. A DCP can help you pay off your existing credit card debts at lower interest rates, with monthly payments you can afford.
The DCP is designed to combine loans that are greater than 12 times your monthly income. In general, the DCP amount you will receive is equivalent to the total outstanding balance you owe from all your credit facilities, including additional fees or charges. When you apply for a DCP, you need to submit your latest credit card statements and unsecured loan statements, as well as a confirmation letter that shows all unbilled balances. This will help the financial institution how much to lend you.
Your first DCP will also give you a 5% allowance on top of the total loan amount. This allowance helps you pay for any fees or charges you may have accrued in between applying for the DCP and the time you receive the DCP funds. The 5% allowance will be sent directly to the financial institutions concerned. Any excess amount left from the 5% allowance will be credited to your account.
In some cases, the approved DCP amount may not be enough to pay your outstanding balances in full. Should this happen, you will need to pay the remaining balance to the financial institution.
If you wish to switch your DCP to another of the 14 approved financial institutions, you may do so after a minimum of 3 months after the approval of your latest DCP. You will also be subject to any penalty fees the original DCP financial institution may charge, such as fees for early termination.
As DCP requires a long commitment, and there are penalties for early termination of an active plan, you should do some research before you apply for a plan. Try looking out for a financial institution that offers convenience, professionalism and good service.
Once you are on a DCP, you existing credit cards and other unsecured facilities will be suspended or cancelled. However, you will be provided with a revolving credit facility equivalent to 1 month?s salary to help you meet daily financial needs.
While your DCP is active, you will not be able to apply for new unsecured facilities until you have repaid some of your debt. If you wish to apply for new credit cards or personal loans from a financial institution other than your DCP bank, you will need to have total unsecured debt of 8 months or less. If you wish to apply for a new credit facility from your DCP bank, you will need to have total unsecured debt of 4 months or less.
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