Finance restructuring is needed when you are faced with mounting debt

Small amounts of overdue debt can spiral into something huge and seemingly uncontrollable unless you do finance restructuring

Having overdue debts can be a frightening prospect as it can take on a high compound interest rate. With patience, responsibility and deliberate actions taken, you can trim your outstanding overdue balances gradually and better manage your debt.

To better manage your debts, you have to be active, consistent and punctual when making payments. Any failure to do finance restructuring to make full payments will incur a minimum fee and interest rate charges, therefore it is best to pay on time and in full. If you are having difficulty doing so, you should look to limit your expenditure and maximise the repayments you are able to make to credit lenders.

When faced with repayment to multiple credit facilities, it would be wise to do finance restructuring and prioritise those with higher interest rates first.

If you want to do finance restructuring to reduce your debt but are unsure of where to start, do not worry! You can purchase a credit report from Credit Bureau Singapore (CBS) to view a summary of your credit history and find all the necessary data that can help you make a comprehensive plan to reduce your outstanding balances. It can help you start building good habits of managing your personal finances.

Debt Management Programme

If you are still struggling to manage your debts despite your best efforts, you may consider signing up for the Debt Management Programme (DMP), an initiative by Credit Counselling Singapore (CCS). CCS specialises in assisting people with unsecured, legal, and consumer debt problems.

DMP is a voluntary monthly debt instalment plan that allows the consumers to repay their unsecured debt (e.g. credit cards and overdraft), including the principal amount and interest charges, to their creditors over a reasonable period of time. It is, however, still the creditors’ prerogative in offering an instalment plan and in specifying the terms of the repayment.

Debt Consolidation Plan

Introduced in January 2017, the Debt Consolidation Plan (DCP) is a little known option of reducing credit debt. DCP is a debt refinancing programme where customers consolidate their unsecured credit facilities across various financial institutions under 1 participating financial institution.

You may wish to consider DCP if you are juggling multiple outstanding repayments across various financial institutions. Under DCP, you will have 1) a greater ease of payment, 2) lower interest rates and 3) greater control of finances under a disciplined fixed monthly repayment scheme.

However, do note that some categories of unsecured loans are not included from DCP, such as joint accounts, renovation loans, education loans, medical loans, and/or credit facilities granted for businesses or business purposes.

To be eligible for DCP, you must meet the following requirements:

• You are a Singapore Citizen or Singapore Permanent Resident; and
• Earn between S$20,000 and below S$120,000 per annum with Net Personal Assets of less than $2 million; and
• Have total interest bearing balances in respect of unsecured credit facilities with financial institutions in Singapore exceeding 12 times the monthly income (Interest bearing balances include amounts rolled over on credit card and balances outstanding on unsecured loans that accrue interest.)

You may approach any of the 14 participating Financial Institutions (FI) for a DCP. It will be up to any one of the FIs to make an offer. The first step to reducing debts or building credit scores is to know what areas can be improved. You can start by obtaining your credit report from Credit Bureau Singapore. A little investment can go a long way.

For finance restructuring, you may also consider debt refinancing. Debt refinancing is when you roll all of your smaller individual loans into one large loan, usually with a longer term and a lower interest rate.

For debt refinancing to be worthwhile, the monthly payment on your debt consolidation loan should be less than the sum of the monthly payments on your individual loans. If you have a lot of debt, you’re not alone. Today, more and more people in Singapore are burdened with credit card and loan payments.

So whether you are trying to improve your money management, having difficulty making ends meet, want to lower your monthly loan payments, or just can’t seem to keep up with all of your credit card bills, you may be looking for a way to make debt repayment easier. Debt consolidation with large loan may be the answer.

What is debt refinancing?

Debt consolidation is when you roll all of your smaller individual loans into one large loan, usually with a longer term and a lower interest rate. This allows you to write one check for a loan payment instead of many, while lowering your total monthly payments.

How do you consolidate your debts?

There are many ways to do debt refinancing. One way is to transfer them to a credit card with a lower interest rate. Most credit card companies allow you to transfer balances by providing them with information, such as the issuing bank, account number, and approximate balance. Or, your credit card company may send you convenience cheques that you can use to pay off your old balances. Keep in mind, however, that there is usually a fee for this type of transaction, and the lower rate may last only for a certain period of time (for example, six months).

Another option to do finance restructuring is to obtain a large loan using your home as equity.

Most banks and mortgage companies offer home equity loans. You will need to fill out an application and demonstrate to the lender that you will be able to make regular monthly payments. Your home will then be appraised to determine the amount of your equity. Typically, you can borrow an amount equal to 80 per cent of the value of the equity in your home. Interest rates and terms for home equity loans vary, so you should shop around and compare lenders.

Some lenders offer loans specifically designed for debt consolidation. Again, you will need to fill out an application and demonstrate to the lender that you will be able to make regular monthly payments. Keep in mind, however, that these loans usually come with higher interest rates than