Ravi Chandran
Small amounts of overdue debt can spiral into something huge and seemingly uncontrollable. 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 overdue debt, you have to be active, consistent and punctual when making payments. Any failure 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 prioritise those with higher interest rates first.
If you want 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 for Overdue Debt
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If you are still struggling to manage your overdue debt 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!
If you are thinking of consolidating debts to deal with overdue debt, remember that your debts are not completely eliminated when you choose debt consolidation.
Moving all your outstanding loan balances to one lender will not reduce the amount you owe. You must ultimately pay off the loan and pay interest until the loan is repaid. When considering debt consolidation factors, remember that your goal should be using debt wisely.
If you are considering debt consolidation factors, here are some reasons why it may be useful:
- Lower rates – Different types of loans have different rates. Credit card debt usually carries higher rates than loans that are secured by an asset such as a home.
- Lower payments – You payment is determined by the amount you are borrowing, the rate being charged and the length of time over which you are paying off the loan.
- Tax benefits – The interest you pay on a home mortgage or home equity loan may be tax deductible while interest on credit card debt and most personal loans is not.
- Peace of mind – Dealing with one lender, making fewer monthly payments and having a plan for paying off your total debt can reduce your financial anxiety.
- Improve credit record – Having fewer debts and making timely payments can make it easier (and potentially cheaper) to secure loans in the future.
The starting point when thinking of consolidating debts is to determine what you have borrowed and the interest you are currently paying.
When considering debt consolidation factors, examine the types of debt you have and the rates you are paying. Are these the types of debt you want? – There may be less expensive alternatives within the category such as replacing your credit card with one that offers lower rate. You may also wish to consider converting one type of debt into a different type that offers lower rates, such as using a lower interest rate home equity loan to pay off other more expensive types.
If you decide to replace debt with debt secured by real estate (for example, by home equity loan), consider the alternatives and remember the risks. You will be pledging your home as collateral.
When considering debt consolidation factors, investigate the attractions of Home Equity Loans if you have a private property.
