Reasons why personal loans should not be used to repay credit card debt

Many people in Singapore hold multiple credit cards at the same time, because each card has its own unique advantages. In this case, people may fall into a debt trap because he/she owes money to multiple creditors. Multiple payments and due dates can be tracked, and uninterrupted reminders about unsettled balances only increase tension. When you fall behind the due date of payment, your debt will only get bigger. One of the ways out of this debt trap is to get a personal loan called a debt management plan or DCP.

The DCP was launched in early 2017 by the Singapore Banking Association [ABS] for all Singaporean nationals and permanent residents facing debt difficulties. DCP is a personal loan that allows you to borrow a total amount to immediately repay all existing debt. However, you can provide DCP assistance only for unsecured credit instruments such as personal loans, credit cards and other credit lines. Let's take a look at some of the pros and cons of the debt liquidation plan:

advantage

• You only need to make a monthly payment because DCP combines all your debts into one debt. This will help you save your energy and time and reduce the pressure to miss payments because you no longer need to track all the different creditors.
• Using DCP to lower interest rates makes it easier to repay all debt and actually make significant progress.
• When DCP is properly managed, you have a better chance of saving some money instead of using your full monthly income to pay your bills.

Disadvantage

• The biggest drawback of DCP is that it may get more debt. Those who are not careful about their expenses and have gambling habits will fall into debt faster.
• Even if the interest rate is low, you may need to take longer to repay the debt with DCP. In the long run, this will result in more interest payments. To avoid this, you must repay your debt as soon as possible.
• If you do not pay in time, you will be fined and interest, which will only increase your burden.

If you choose to transfer DCP to another bank, you must do so three months after the DCP is approved. You will be required to pay a fine, and the original bank may charge a fine for early termination or transfer of your DCP. Because DCP requires a long-term commitment, you should conduct extensive research before applying for a program.

Once you have taken out the debt settlement plan, all your borrowed credit cards and unsecured debt will be postponed. You will receive a revolving credit equivalent to one month's salary. Unless you repay part of your debt, you will not be eligible to apply for any new unsecured cards during your DCP event.

Eligibility criteria

To qualify for DCP, you must be a Singaporean or permanent resident. You must have a personal asset worth less than S$2 million, or your income should be between S$20,000 and S$120,000 per year. Your consolidated unsecured debt must exceed 12 times your monthly income.

Fees associated with the debt management plan

Several banks in Singapore charge a fixed fee, while other banks charge up to 3% of the sanctioned loan amount. If you can wait a few days, you should choose a personal loan to fund your crisis. Personal loans are superior to cash advances due to fixed monthly payments and low interest rates.

A debt clearing plan will help you pay a lower monthly loan at a lower interest rate. Therefore, it will help you focus on one contribution per month and reduce financial stress. A personal loan in the form of a debt management plan will help you negotiate with the creditor to cancel the penalty to reduce your loan amount.

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