How much can Singaporeans save with a debt consolidation plan?

By SingSaver.com.sg We crunched the numbers and discovered how much you can save when you use a debt consolidation plan for all your credit card balances. It’s quite common for Singaporeans to owe money on several credit cards or personal loans. Keeping track of all your outstanding payments can be tricky, especially if you are managing credit cards from different banks and with different due dates. The moment you miss a due date, it doesn’t take very long for the high interest rates to start piling up. And the longer you delay your payment, the more your debts grow. This is when a debt consolidation plan (DCP) in Singapore become useful. As the name suggests, this debt management product lets you combine unsecured debts into a single loan.When a financial institution gives you a DCP, they buy out all your outstanding balances, fees, and charges payable from your credit cards and loans – even if they are from different banks. These accounts will then be closed or temporarily suspended. Then, you will have to make monthly payments to the financial institution that provided the DCP, until your debt is fully cleared. How Does a Debt Consolidation Plan Help Me Save Money? Putting all your existing unsecured loans under a DCP means you only need to make one payment each month. No need to keep track of multiple bills and due dates! Streamlining your current obligations with a DCP makes managing your finances less complicated, giving you more time and energy to focus on other things. More importantly, a DCP lets you save money on repayments by offering a lower interest rate and a longer payment period. Credit card interest rates are some of the highest in Singapore, averaging at around 25% p.a. per card. When you can’t pay the full amount by the due date, you get charged this high interest rate on the remaining balance, which compounds every day you delay your payment. This is why it’s easy for credit card debt to snowball into an unmanageable amount. A DCP, on the other hand, is basically a loan with a lower interest rate than credit cards and most personal loans. While the interest rate varies depending on the tenor and financial institution, they are nowhere near as large as a credit card’s interest rate. This can save you thousands of dollars on interest payments. How Much Money Will I Save on a Debt Consolidation Plan? Let’s take the example of Xin Yi, who has a monthly salary of S$3,000 and a current outstanding balance of S$40,000 between one personal loan and 3 credit cards from different banks.

	Outstanding Balance	Interest Rate	Minimum Payment
Credit Card 1	S$15,000	26% p.a.	S$450
Credit Card 2	S$10,500	25% p.a.	S$315
Credit Card 3	S$8,000	25.95% p.a.	S$240
Personal Loan (24 months)	S$6,500	11.32% p.a.	S$304

  Xin Yi is barely keeping up with the minimum payment, which adds up to S$1,309 a month – nearly half of her monthly salary. At this rate, she is paying around S$9,180 in interest alone per year. Because the interest rate on credit card debt compounds on the remaining balance, it will take her several years until she clears her debts completely. Let’s assume that Xin Yi can get a debt consolidation plan from HSBC, payable over 10 years, with an interest rate of 10% p.a. Here is how much she would be paying per month, compared to her current commitments:

	Current Payment	Debt Consolidation Plan
Total outstanding balance	S$40,000	S$42,000 (including 5% allowance)
Interest rate	26% p.a. 25% p.a. 25.95% p.a. 11.32% p.a.	10% p.a. (10 years)
Total monthly repayment	S$1,309	S$555.03
Total interest payable over 1 year	S$9,180	S$2,460.36
Total interest payable over 10 years	S$86,804	S$24,603.97

  These figures have been simplified for illustrative purposes. Actual figures may vary depending on your situation. With HSBC’s DCP, Xin Yi pays only S$555.03 per month for her combined debts. If she can pay this monthly amount on time, she can be free from all these debts in 10 years. She can also save S$62,200.03 on interest payments, compared to if she didn’t use a DCP to clear her debts. Another way a DCP helps Xin Yi manage her debt is by providing her with a revolving credit facility to help her with her daily needs. By signing up a DCP with HSBC, Xin Yi will also receive an HSBC Visa Platinum credit card that has a credit limit of 1 month’s salary. This credit card may be freely used to cover minor emergencies or unexpected bills. Now, if Xin Yi can afford to pay a little more than S$555.03 per month, she can pay off her debts sooner and enjoy an even lower interest rate. Currently, HSBC is offering an EIR of 8.5% p.a. for DCPs with 1 to 7-year tenor. Here’s how much she would pay (and save on interest) with a 7-year plan:

	Current Payment	Debt Consolidation Plan
Total outstanding balance	S$40,000	S$42,000 (including 5% allowance)
Interest rate	26% p.a. 25% p.a. 25.95% p.a. 11.32% p.a.	8.5% p.a. (7 years)
Total monthly repayment	S$1,275	S665.13
Total interest payable over 1 year	S$9,336.80	S$1,981.58
Total interest payable over 7 years	S$61,001.02	S$13,871.12

  These figures have been simplified for illustrative purposes. Actual figures may vary depending on your situation. By paying just S$110 more every month, Xin Yi can pay off her debt in 7 years and save around S$10,732.85 on interest, compared to the 10-year DCP. Save More with the Lowest Interest Rates The trick to saving money with a DCP is to compare across banks and get the plan with the lowest interest rates. Currently, HSBC is offering a promotional rate for those who apply for a new DCP between 23 January 2017 and 28 February 2017, and get it approved by 31 March 2017. Eligible applicants get an exclusive EIR of 8.5% p.a. If the approved loan tenor is between 1 to 7 years, or a 10% p.a. EIR if the approved loan tenor is between 8 to 10 years. Applicants also get their processing fee waived, which is usually 1% of the approved loan amount (subject to a minimum of S$88). This means that, for a S$42,000 approved loan amount, you save S$420 in processing fees. You can apply for HSBC’s debt consolidation plan online. If you’re still not clear on how a DCP can help you pay multiple debts, you can read our guide to debt consolidation plans in Singapore. Singsaver.com.sg, Singapore's go-to personal finance comparison platform, guides consumers on the best money habits with its credit card comparison tool and allows real-time personal loans product comparison.