If you no longer have the reins over your debt, you might be considering a debt consolidation loan. But how does debt consolidation loan work?

There are different ways to consolidate debts, and you must pick the right choice.

To avoid getting a worse deal than your current situation, read this article. We teach you what debt consolidation loans are and discuss debt consolidation plans in terms of maximum amounts and eligibility conditions.

We will even show you how to use calculators and discuss alternatives, so keep reading.

What Is A Debt Consolidation Loan?

A debt consolidation loan is an unsecured personal loan that amasses your previous loans into a new one.

In Singapore, debt consolidation is a popular alternative for those who cannot tackle their current loans because:

  • The accumulated interest across your loans increases the monthly installments.
  • The tenures or payment deadlines for some of these loans are too short.
  • There are too many installments to keep track of.

How does debt consolidation loan work? Consolidating your debt solves these problems because the money lender settles your original creditors. They also establish a new (longer) tenure, thus decreasing the monthly installment.

And you will have just one payment each month, so you can easily keep track of your expense calendar.

How Does A Debt Consolidation Plan Work?

A debt consolidation plan (DCP) is a tool created by the Association of Banks in Singapore (ABS) in 2017.

In Singapore, a debt consolidation plan:

  • Is intended for Singaporeans and permanent residents (PRs)
  • Can cover unsecured loans with high interest rates and a total quantum of over 12 times your monthly income
  • Covers credit cards, credit lines, and personal loans
  • Has a maximum tenure of 10 years

Remember: Unlike a standard debt consolidation loan in Singapore, a DCP does not apply to foreigners or people with total loans below 12 times of their monthly earnings.

You also cannot use it for:

  • Business credit lines
  • Business loans
  • Car loans
  • Education loans
  • Housing loans
  • Joint accounts
  • Medical loans
  • Renovation loans

Here is what a possible debt management plan in Singapore would look like. Take the example of Tom. His monthly income is $4,000, but he has accumulated a debt of $50,000:

  • Three credit card loans, each $12,000 at a 26% annual interest rate with minimum payments of $500 per month
  • One unsecured personal loan of $14,000 at a 19% annual interest rate with a monthly installment of $1,000. The remaining tenure for this loan is 16 months.

As such, Tom must allocate $2,500 (more than half) of his monthly income towards repaying these loans. The debt consolidation plan is a good strategy because Tom will get a better monthly deal. Here is one example:

  • $580.54 monthly installment
  • 7% per annum interest rate
  • A 10-year tenure

How To Use A Debt Consolidation Calculator

Now that you know how does debt consolidation loan work, you will need to see if this option is best for you.

A debt consolidation calculator helps you compare the differences between your current loan and monthly installments and your new terms after consolidating your debt.

Returning to Tom’s situation, we can see the following:

  • By paying $500 per month on each of his credit cards, Tom would repay his debt in 34 months with $4,322 in interest.
  • By paying $1,000 on his personal loan, Tom would accumulate interest worth $1,958.08 over the next 16 months.

In comparison, taking the 10-year debt consolidation loan at 7% per annum would:

  • Lower his installment to $580.54 instead of his current $2,500, but:
  • Increase the overall tenure to 120 months instead of 34 months, and:
  • Increase his overall interest rate to $19,664.80 instead of the current $6,280.08.

If Tom is presented with this information, he might waver. He might dislike being indebted for so long or paying such a high interest.

That’s where a debt consolidation calculator comes in. Tom can input and check different terms and conditions.

Let’s say Tom is curious to learn how much he would have to pay in installments and interest were he to choose a debt consolidation loan with a 34-month tenure like he currently has.

The calculator renders the following sums:

  • $1625.51 monthly installment saves him $874.49 per month
  • $$5,267.34 accumulated interest saves him $1,012.74 in total interest

How Much Can You Borrow?

Loans for consolidating debt cover:

  • Your outstanding loans
  • Accrued fees (e.g. interest or late payment charges)

Warning: Some debt consolidation plans may not cover your remaining loans. In these rare instances, you will have to settle your remaining creditors.

There is good news. If this is your first debt consolidation plan, money lenders will give you an extra 5% allowance above the DCP sum. This extra money:

  • Is transferred to your creditor’s account, not your bank account(s)
  • Covers incidental fees between the DCP approval and the DCP funds transfer
  • Is refunded or transferred to your account only when it is not fully used towards those unexpected fees

Qualifying Criteria

If you want to consolidate your debt loans through a DCP, you must meet the following criteria:

  • Be a Singapore citizen or PR
  • Be a salaried employee
  • Have an annual income between $30,000 and $120,000
  • Have unsecured credit card debt or personal loans above 12 times your monthly income

Pro tips:

  • Research different banks before applying.
  • If you find a better DCP after getting approved, you must wait three months before changing banks.
  • Changing DCP providers may earn you cashback from the new bank, but your previous bank may impose some penalty fees.

Warning: If you choose the DCP route, you cannot get a new credit card or loan until your remaining balance drops below eight times your monthly income.

Where To Apply For A Debt Consolidation Loan Or Plan

If you are interested in a debt consolidation plan, only certain financial institutions in Singapore offer this scheme:

  • American Express International, Inc.
  • Bank of China Limited Singapore
  • CIMB Bank Berhad
  • Citibank Singapore Limited
  • DBS/POSB Bank Ltd
  • Diners Club Singapore Pte Ltd
  • HL Bank
  • HSBC Bank (Singapore) Limited
  • Industrial and Commercial Bank of China Limited
  • Standard Chartered Bank (Singapore) Limited
  • Maybank Singapore Limited
  • Oversea-Chinese Banking Corporation Limited
  • RHB Bank Berhad
  • United Overseas Bank Limited

In contrast, you can get a conventional debt consolidation loan from a licensed money lender in Singapore.

That brings us to the next point.


As you can see, the DCP has strict requirements. And most people fighting off bad debt earn way below $30,000 per year. Not to mention that foreigners do not have access to these plans.

Here are your alternatives:

  • Consider a classic debt consolidation loan that has fewer eligibility requirements. This option is best if you have large unsecured loans.
  • Consider an emergency or personal loan if you owe a smaller amount. This option gives you access to fast cash with no explanations required. Basically, you can spend this money however you see fit to get out of debt faster.

U Credit can help. As a trusted licensed money lender in Singapore, we have crafted a slew of unsecured loan packages ranging from personal loans to bad credit loans, foreigner loans, and fast cash loans.

If you want to become debt-free faster, our expert loan officers are trained to customise these financial packages to your needs.

We will also help you with personalised advice and strategies to reduce debt and improve your financial standing.

Contact us now or apply for a loan with us today.