Debt repayment programmes in Singapore
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- It is important to control your spending before it spirals out of control.
- There are 3 main types of debt restructuring programmes in Singapore to help borrowers avoid bankruptcy or to be more disciplined in repaying debts.
It is a common belief that only big spenders and those who are careless with their money end up racking up large debts. But this is not always the case.
Those who have smaller debts but choose to leave them unattended may end up in the same predicament, as money owed to a debtor can balloon over time. In other words, a lot of small purchases on credit can add up to being quite the headache before you know it.
While the root causes for why people accumulate debts vary, the one thing that remains common is their inability to control their spending before it spirals out of control.
3 debt repayment programmes
There are debt repayment programmes in Singapore that can be of help to borrowers to avoid bankruptcy or to be more disciplined in the repayment of outstanding debts.
Here are 3 main programmes for you to restructure debt in Singapore:
- Debt Consolidation Plan (DCP)
- Debt Management Plan (DMP)
- Debt Repayment Scheme (DRS)
The DCP was introduced in January 2017 to provide an avenue for individuals to be more disciplined in meeting their debt payments or commitments. In a nutshell, it offers individuals the option to consolidate their unsecured credit facilities (like credit cards or other types of unsecured loans) with one of the participating financial institutions in Singapore like DBS.
What this means is that if you wish to take up a DCP with DBS, your debts are combined and then paid off by DBS. In return, you will have to commit to paying off DBS through making regular payments – often at a lower interest rate – across a particular period of time.
For example, interest rates for credit cards tend to be between 20-26% per annum. With a DCP, those debts can be consolidated with DBS and then paid off from an interest rate of 3.58% per annum or an effective interest rate* of 6.56% per annum.
As the DCP is aimed at helping an individual cut debt, those keen to apply for this restructuring plan through a bank would have to cut their unsecured debt to 8 times their monthly income before they can access fresh unsecured credit from a second bank.
This means no unsecured loans from any financial institution will be granted unless you lower the outstanding unsecured debt to 8 times your monthly income.
Through the DCP, however, individuals do have the benefit of having one credit card with a month’s credit to help them facilitate other payments.
In order to qualify for DCP, the outstanding unsecured debt an individual has needs to exceed 12 months of his/her monthly income.
*Effective Interest Rate – based on S$63,000 loan amount for 96-months loan tenure and inclusive of processing fee.
The interest rate offered to you is based on your personal credit profile and may differ from the published rate and the rate offered to other borrowers, subject to the bank’s discretion.
Another debt repayment programme available is the DMP. Since 2004, it has been offered by Credit Counselling Singapore (CCS), a registered charity and an agency that assists individuals who face unsecured debt problems.
Like the DCP, the DMP is a monthly instalment plan that allows people to gradually repay unsecured consumer debts – such as credit cards and overdraft – including the principal amount and moderated interest charges to creditors over a reasonable period of time.
However, they differ in that with the DMP, debts are not consolidated under one financial institution like with the DCP. Another difference is that unlike the DCP, those who take up the DMP would not have the benefit of having one credit card to help them facilitate payments.
According to CCS, the DMP is suitable for people who are willing (to avoid bankruptcy) and able (in possession of some money) to repay their unsecured consumer debts.
CCS conducts a one-hourly debt advisory session with eligible applicants to help work out their monthly spending needs before working out a payment proposal that creditors can approve.
As such, a monthly instalment payment will be within the person’s servicing capacity and the applicant is expected to make prompt, full and regular payment during the repayment term.
In some cases, an individual might not be eligible for a DCP or DMP. There is another avenue available, the DRS.
This programme is targeted at individuals who are in a dire financial position that they may have to explore declaring bankruptcy. The DRS is an alternative to bankruptcy. It may be an option when the debtor is sued by a creditor or he/she can voluntarily apply to become a bankrupt.
When a bankruptcy application is made to the High Court of Singapore and debts owed do not exceed S$150,000, the court may refer the debtor to the Official Assignee (OA) from the Ministry of Law’s Insolvency Office, which administers the DRS, to assess the debtor’s eligibility and suitability. If the debtor satisfies the qualifying criteria and the OA assess him to be suitable, the OA will assist the debtor in devising a DRS.
While the borrower’s DMP or DCP status is not on public record but is registered with Credit Bureau Singapore, whose data is accessible to its members (mainly the financial institutions), a DRS status is a public record.
In addition, unlike in a bankruptcy, individuals face no travel restrictions, have a fixed period to repay debts, and can maintain a regular savings account.
How do they compare?
Live within your means
Regardless of an individual’s circumstances, debts tend to rack up due to the inability to control spending before it spirals out of control.
As such, it is important to start financial planning early and not wait until debts pile up before seeking help. This is especially important for those who have just joined the work force and are given access to credit cards and personal loans for the first time.
Here are some tips for you to take note of:
- Save before you spend
- List your monthly expenses
- Be conscious of your fixed and variable expenses
- Make your credit card work smarter for you
- Have a contingency plan
Ultimately, do remember to pay off your debts in a timely manner and live within your means.
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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability