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What is a Debt Consolidation Loan?

If you are here, you probably have two or more debts pending repayments. The debts may be from your personal loans, credit card loans, and more from several creditors.

Let’s be frank, debt can stress you. So, what about having different obligations? You’ll have to bow to the high-interest demand while trying to beat the due dates for clearing.

The good thing is a debt consolidation loan is available, and Singaporeans swimming in multiple debts should utilize it!

Without further ado, let’s dive into this article to learn more details about debt consolidation, its benefits, types, and who should use it!

Debt Consolidation Loan – What Does it Entail?

In simplest terms, debt consolidation is merging loans from multiple creditors into one loan under one bank. Once you consolidate these loans, you enjoy a lower interest rate and a well-defined payment plan.

A debt consolidation loan seeks to cover all your high-interest loans to a low-interest one. So, if you have debts on your car, credit card, or student loan, you might want to combine them. You open a single account for these three loans and pay one sole amount monthly instead of making multiple payments geared to clear each of the loans.

If you have many debts, combining them will ensure you stay at the top of your finances. Furthermore, you will likely not miss out on loan repayment, which helps in having a good credit history.

However, remember that debt consolidation does not wipe out your loan balance. Your debt amount remains the same, but at least the interest lowers, so you save a lot on this.

How Does Debt Consolidation Loan Work?

Debt consolidation makes your debt repayment easy. If you owe different lenders money, keeping track of what you’ve already paid and the remaining debts is challenging. You’ll even forget the minimum amount you should pay, which can affect your credit score.

It is a process you can efficiently complete as long as you have all the relevant documents and paperwork to put together the different debts. Then, you need to apply for a debt consolidation loan from a licensed lender. By doing this, the lender or bank typically purchases your pending balances from different creditors.

You, therefore, get a new loan, but this time at a lower interest rate. Now that you have one loan, you enjoy a single due date, too, that’s easy to keep track of. Typically, you need to make fixed monthly repayments with a debt consolidation loan over the loan tenure period.

Who Can Use Debt Consolidation Loan?

For one to be eligible for the debt consolidation loan, they must fulfil the following requirements:

  • Be a Singapore citizen
  • If you are a foreigner, you must be a permanent resident of Singapore with a valid work permit.
  • You must be employed and earning a monthly salary – Now, your lender should stipulate the minimum amount you should be making.
  • You are only eligible for the debt consolidation loan if you have no other plan. You can only have one debt consolidation plan at a time.

To get the debt consolidation loan, you must present certain documents that your lender deems fit. Such may include:

  • Proof of identity
  • Proof of income
  • Proof of residence – foreigners
  • Work permit – Foreigners
  • Payslips

Why Should You Apply for the Debt Consolidation Loan?

1.    To Save on Interest

One significant benefit of a debt consolidation loan is that it allows you to save so much on interest. Interest on credit cards is generally high in Singapore. Therefore, if you can consolidate this loan with others like car loans, you will most likely spend significantly lower interest rates.

2.   You Quickly Repay Outstanding Debt

The goal is to wake up one and realize that you are debt free! However, this is not readily achievable, especially when you have several loans pending. With the right strategy in place, you will repay your debts sooner than you think.

Opting for debt consolidation, especially when you have credit card debt, gives you a timeline within which you ought to have repaid your loan. You now have fixed monthly payments; therefore, you complete paying in a shorter period.

3.   Organize Your Finances

It is, of course, tiresome to keep track of every single repayment you need to make. By consolidating all your loans, you only require to make monthly repayments which is much more convenient.

Also, you pay a fixed amount each time; therefore, you know the amount to set aside every month. Generally, you can plan accordingly based on the amount you’re required to pay each month. This is also an ideal strategy to reduce the chances of late payments.

4.  Allows You to Select Your Loan Tenure

There is a minimum amount to pay monthly in Singapore for credit cards. Failure to do so incurs a penalty.

Now with a debt repayment loan, you have the freedom to select your own loan tenure. Therefore,it’s more practical to pay your debt without anyone rushing you since you set your timing alone. You can opt for a longer-term, which by the way, attracts higher interest rates, or a short one for lower rates – The choice is yours!

Does a Debt Consolidation Loan Affect Your Credit Rating?

To a large extent, yes! However, it will affect in a good way but with a few drawbacks.

A debt consolidation loan is like any other loan you’ve been repaying. It can only improve your credit score rating if you pay on time and all the required amounts.

On the other hand, with a debt consolidation loan, you are likely to get a bad credit rating. This is because credit scores mainly favour longer term loans with consistent repayment. However, your score will improve if you pay your loan in time.

So Go Ahead and Get a Debt Consolidation Loan!

It’s hard to evade loans in Singapore, especially now that the cost of living is skyrocketing. However, as you get the financing, ensure you have a viable plan to repay them. Consolidating all your debts into one is an ideal option to at least seamlessly repay all your existing loans.

At Su Credit, we provide you with a debt consolidation loan at low-interest rates. Our instalments and timings are reasonable, so you enjoy a hassle-free road to being debt free. Talk to us today to learn more!

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