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Mounting Debt – How to be Debt-Free

Contributed by Credit Bureau Singapore

A small debt can spiral into something large and seemingly uncontrollable, much like a snowball on a mountain top could set off an avalanche. Having debts can be a frightening prospect as some debts can take on a high compound interest rate. But with patience, responsibility and deliberate action, you can trim your outstanding balances slowly and work your way to a debt-free future.

To pay off your debts, 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 struggling to do so, you should look to limit your expenditure and maximise the payments 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 do not know where to start from, do not worry! In Credit Bureau Singapore’s (CBS) Credit Report, you will find the necessary data to help you make a comprehensive plan to reduce your outstanding balances. Your credit report is a record of your credit payment history complied from banks and major financial institutions and it should be the first place you should look for in totality of your debts.

Debt Management Programme

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

DMP is a voluntary debt repayment plan which allows someone to gradually repay his unsecured debts, to all his creditors over a reasonable period of time. However, it is the creditors’ prerogative to offer an instalment plan and to specify the terms of the repayment.

Debt Consolidation Plan

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

You might want to consider DCP if you are struggling on multiple payments across various financial institutions. Under DCP, you will have 1) a greater ease of payment with only 1 financial institution, 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 loan, medical loans, and/or credit facilities granted for businesses or business purposes.

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

  1. Be a Singapore Citizen or Singapore Permanent Resident
  2. Earn between S$20,000 and below S$120,000 per annum with Net Personal Assets of less than $2 million
  3. Have Total interest bearing balances^ in respect of unsecured credit facilities with financial institutions in Singapore exceed 12 times 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 FI to make an offer.

If you want to reduce your debts or build on the credit score, the first step to take is to learn of the areas to be improved. You can obtain your personal credit report from Credit Bureau Singapore at $6.42 per copy. A little investment can go a long way.