Not Ju$t You: Swimming in Debt

Not Ju$t You, a SingSaver series, sheds light on millennial money matters we are hesitant to talk about, but really should.

With the increase in commodity prices and the Ukraine-Russian war driving inflation rates and the cost of living to an all-time high, taking a second look at your debt commitments and stopping it from spiralling out of control would be a wise move.  

Bad debt and the need for debt consolidation plans don’t occur overnight. For many, it starts off by living from paycheck to paycheck. When an unexpected major bill arrives, the chances of the financial scale tipping is high, as debtors struggle to stay afloat and complete their monthly loan repayments at the same time.

Dealing with the added stress of snowballing interest rates and late payment notices can be a stress inducer, to say the least. You don’t want to end up in court or worse, be issued a bankruptcy notice.

There are ways to get debt relief, and we will get on to that in a bit. Firstly, let’s cover the red signs you should notice for financial troubles.

How do you know you’re stuck in debt?

If you can tick some or most of these factors, it’s high time you review your finances. 

You make minimum payments only

If you’re only sticking to the bare minimum of your loan repayments and don’t put more money towards paying off your debt, you’re already on the losing end, as your remaining principal sum (especially for credit cards) will be charged for interest.

You’re using short-term loans and balance transfers constantly

 Now, short-term loans and balance transfers have their uses, but if you’re using them to switch your debts from one account to another, you’re not actually clearing your debts.

You constantly rely on cash advances

Cash advances are charged to your credit card, and there’s usually a fee involved to withdraw the sum from your credit card account. If you’re withdrawing cash advances constantly, you need to check your income expenditure.

Your credit score rating is low

If you’re not maintaining a healthy financial lifestyle, this could affect your future credit requests, as your credit score does not have a healthy rating.

You’re not saving enough, or at all

If you have too much debt to sort out, there’s no avenue for you to grow your savings nest.

Debt consolidation plans

Now, if you’re looking for a way out that combines all your debt into one place, the best get-out plan is a debt consolidation plan.

What is a debt consolidation plan like in Singapore?

A debt consolidation plan here helps you consolidate all your unsecured loans (this refers to credit cards, personal loans and other types of unsecured loan facilities) into one, handled by a financial institution of your choice.

The good thing about debt consolidation loans is that you get friendlier interest rates. You also don’t have to worry about tracking your repayments across different banks and being concerned with different rates. Banks even offer promotions from time to time for these plans, including S$0 processing fees and cashbacks. 

A debt consolidation plan can stretch for up to 10 years, and your loan is subject to EIR. For instance, The table below shows you the expected monthly repayment for varying loan sums with HSBC Singapore.

Interested to see what your monthly repayment would look like for a similar plan? Use this debt consolidation calculator.

Can I apply for a debt consolidation plan?

You will need to fulfil the following criteria to apply for a debt consolidation plan in Singapore:

1. Be either a Singapore Citizen or Permanent Resident
2. Have an income of between S$30,000 to below S$120,000 per annum and also have less than S$2 million in Net Personal Assets
3. The total interest-bearing unsecured debt you have (inclusive of credit cards and other unsecured facilities) goes beyond 12 times your monthly salary

What type of fees or rates am I subject to?

There are a few kinds of fees which you may have to pay, and these include:

Joining fee

This ranges from S$0 to S$199, depending on your bank of choice.

Early redemption fee

If you’re intending to settle your loan sum before the term ends naturally, you may need to pay an early redemption fee set by the financial institution.

Late payment charges

Ensure that your repayments are timely, and you won’t need to dig further into your wallet to settle a late payment fee. 

Default interest rates

If your full payment is not in by its due date, finance charges can apply, which will be calculated on a daily basis, starting from when the payment was due to when you finally made the payment itself. The Effective Interest Rate or EIR applies. Default interest rates can vary from bank to bank.

What happens when my debt consolidation plan is approved?

Your existing unsecured loan accounts will either be suspended or closed. You will need to cancel all the auto-debit instructions and create a new auto-debit to service your new debt consolidation loan account repayment.

You will have a line of credit which is the equivalent of one month’s salary for your day-to-day expenses. 

Finally, you will get a 5% allowance which serves as a buffer to any other charges that could apply from the time the DCP loan is approved to when its sum is dispersed across your financial institutions.

I don’t qualify for a debt consolidation plan — what else can I do?

There are a few other alternatives to help you clear your debts.

Personal loan

If your finances are just starting to go askew and still in the early stages of bad debt, you could opt for a personal loan to settle part or all of your unsecured debts.

The upside of this is that you won’t have to worry about your credit score being affected too much.

Submit a debt appeal to your bank

This could perhaps be the easiest of the lot to do. All you need to do is submit a letter stating your intent to ask for a repayment plan that is more affordable to you, given your financial situation. This is subject to approval and a review from your bank.

Your banker may request for your planned budget on repayment and any proof you have for a loss in income. 

Debt Management Programme (DMP) under Credit Counselling Singapore (CCP)

This option is ideal for someone undergoing severe financial issues, including someone who cannot support himself after completing their loan repayments or already undergoing legal action.

A debtor will need to attend a Consumer Debt Management Webinar. There are in-person or online classes. English classes are a weekly affair, while Mandarin classes are one a month.

Another alternative is to attend the CCP Online Debt Management Course, which can take between 90 minutes to 120 minutes to complete. 

When you have completed either of these two steps, you can put in a request for credit counselling using the Online Submission Portal and upload the supporting document required, or download its PDF copy and email (precounsel@ccs.org.sg) or post it to CCS.

The documents required include:

• Your credit report
• Loan information report
• CPF transaction history statements
• CPF contribution history statements
• Relevant income documents

Being under the DMP plan gives you better rates and an extended repayment period. Your credit score will indicate that you are under a DMP and due to this, cannot apply for a new unsecured credit facility. The upside to this plan is that credit counsellors will be there to guide you in solving your financial debt matters.

Debt Repayment Scheme (DRS)

This pre-bankruptcy programme run by the Insolvency Office places a debtor in a monthly repayment plan for up to five years. By participating in a DRS, your creditors will not be able to take legal action towards you. 

In order to apply for the scheme, you would first need to submit a bankruptcy claim via court. You will be then redirected to the Insolvency Office, where an Official Assignee (OA) assesses your DRS eligibility. 

Your total liabilities cannot exceed S$100,000 for this scheme. You should also be employed and earning a regular salary. Other boxes to tick include no previous court-based arrangements and previous bankruptcy or DRS for the past five years. In other words, you need a clean record to be eligible for DRS too.

You would need to pay administrative fees as well as payments due to your OA for aiding you in your DRS submission.

Finding the way out of debt woes

The circumstances that brought your bad debt about can be many — medical bill payments, unexpected emergencies, overspending, and the like.

The thing you have to do is realise that you have to pull yourself out, before you go down too deep into the rabbit hole and it takes more effort to get out.

Read these next:
What is a Debt Consolidation Plan And How Does it Work In Singapore?
4 Ways to Pay Off Credit Card Debt in Singapore
What Happens If: You Skip Credit Card Bills, Loan & BNPL Payments
2 Strategies To Consider When Clearing Crushing Debt In Singapore
Balance Transfer: How Does It Work And Should You Get One?