Many people in Singapore have multiple credit cards at the same time, as each card has its own unique benefits. In such circumstances, people can potentially fall into a debt trap, as they owe money to various creditors. There are multiple payments and due dates to keep track of, and continual reminders about the outstanding balance only add to the tension. As you fall behind on your payment due dates, your debts will only increase. One of the ways out of this debt trap is to have a personal loan known as a Debt Management Plan or DCP.
The DCP was introduced by the Singapore Banking Association (ABS) in early 2017 for all Singapore citizens and permanent residents facing difficulties in paying off their debts. DCP is a type of personal loan where you can borrow a lump sum to pay off all your current debts right away. However, you can enlist the help of a DCP only for unsecured lines of credit, such as personal loans, credit cards, and other lines of credit. Let’s take a look at some of the benefits and drawbacks of a debt settlement plan:
Profits
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You only have to make a single payment per month as a DCP consolidates all of your debts into one debt. This will help you save energy and time, and reduce the stress of missing a payment, as you no longer have to keep track of all the different creditors.
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Lower interest rates with a DCP make it easier to pay off all your debts and make visible progress.
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When a DCP is managed well, you have a better chance of saving some money rather than spending all of your monthly earnings on paying bills.
Drawbacks
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The biggest drawback of DCP is the possibility of borrowing more. People who are not careful with their spending and are in the habit of gambling are prone to going into even more debt.
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Even with low interest rates, it may take longer to pay off your DCP debt. In the long run, this will lead to a higher interest payment. To avoid this, you should focus on paying off your debt as soon as possible.
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Failure to make payments on time will result in penalties and interest, which will only add to your burdens.
If you choose to transfer your DCP to other banks, you must do so three months after your DCP is sanctioned. You will be subject to penalties that the original bank may charge for the early termination or transfer of your DCP. Since a lengthy commitment to a DCP is required, you should do your research thoroughly before applying for a plan.
Once you have purchased a Debt Settlement Plan, all your current credit cards and unsecured debts are deferred. You will be offered a revolving credit equal to your one month’s salary. You will not be eligible to apply for any new unsecured cards during the time your DCP is active, unless you have paid a portion of your debt.
Eligibility criteria
To be eligible for a DCP, you must be a permanent or Singapore resident. You must have personal assets worth less than S $ 2 million or your income must be in the range of S $ 20,000 to S $ 120,000 per year. Your consolidated unsecured debts must exceed your monthly income by more than 12 times.
Fees associated with a debt management plan
There are some banks in Singapore that charge a fixed processing fee, while others charge up to 3% of the sanctioned loan amount. You should opt for a personal loan to finance your crises if you can wait a few days. Personal loans are better than cash advances due to fixed monthly payments and low interest rates.
A debt settlement plan will help you pay a lower monthly sum with low interest rates. As a result, it helps you focus on just one contribution each month and less financial strain. A personal loan in the form of a debt management plan will help you negotiate with your creditors to eliminate penalties to reduce your loan amount.