Debt Consolidation Loan Vs Pay Off Credit Cards

Debt Consolidation Loan Vs Pay Off Credit Cards – If you don’t have time to read the whole article, you can check out our short version below.

It is a widely held belief that only those who are big spenders and careless with money end up in huge debts. But that doesn’t always happen.

Debt Consolidation Loan Vs Pay Off Credit Cards

Those with small debts who choose to ignore them can find themselves in the same predicament, as the money owed to the borrower can pile up over time. In other words, too many small credit purchases can cause headaches before you know it.

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Although the main reasons why people accumulate debt vary, one thing that remains common is their inability to control their spending before it gets out of control.

Singapore has debt settlement programs that help borrowers avoid bankruptcy or become more disciplined in repaying outstanding debts.

DCP was introduced in January 2017 as a way for individuals to be more disciplined about meeting their debts or obligations. In short, it gives individuals the opportunity to consolidate their unsecured credit (such as credit cards or other types of unsecured loans) with one of the participating institutions.

This means that if you choose to take out a DCP, you will consolidate your debts and then pay them off. In return, you’ll commit to making regular payments over a set period of time – usually at a lower interest rate.

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For example, interest rates on credit cards range from 20-26% per annum. With DCP, these debts can be consolidated and later repaid at an interest rate of 3.58% per annum or an effective interest rate of 6.56% per annum.

As DCP aims to reduce a person’s debt, those who wish to apply for this restructuring plan through a bank must reduce their unsecured debt to 8 times their monthly income before getting a new unsecured loan from another bank.

This means that no financial institution will give you an unsecured loan unless you reduce your outstanding unsecured debt to 8 times your monthly income.

However, through DCP, individuals will have a credit card with a monthly credit, which will help them make more payments easier.

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To qualify for DCP, a person’s unsecured debt must exceed 12 months of their monthly income.

*Effective interest rate – includes a processing fee based on the loan amount of S$63,000 for a 96-month loan term.

The interest rate offered to you is based on your personal credit profile and may differ from the published rate and other lenders at the bank’s discretion.

Another debt settlement program available is the DMP. Offered by Credit Counseling Singapore (CCS) since 2004, a registered charity and agency helping individuals with unsecured debt.

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Like a DCP, a DMP is a monthly installment plan that allows people to gradually pay off unsecured consumer debt, such as credit cards and overdrafts.

However, they differ from DMP in that the debts are not consolidated under one financial institution as in DCP. Another difference is that unlike a DCP, DMP borrowers don’t have the benefit of having a credit card to help make payments easier.

According to CCS, a DMP is suitable for people who have the ability (and some cash) to repay unsecured consumer debt (to avoid bankruptcy).

CCS organizes hour-long loan counseling sessions with qualified applicants to help address their monthly spending needs before developing a payment proposal that lenders can agree to.

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As such, the monthly payment is within the individual’s service capacity and the applicant is expected to make prompt, complete and regular payments during the payment period.

In certain circumstances, a person may not be eligible for DCP or DMP. Another method, DRS, is also available.

This program is aimed at individuals experiencing severe financial hardship who should consider filing for bankruptcy. DRS is an alternative to bankruptcy. This may be an option when the debtor is sued by a creditor or voluntarily files for bankruptcy.

If a petition for bankruptcy is filed in the High Court of Singapore and the outstanding debts do not exceed S$150,000, the court may refer the debtor to the Official Assignee (OA) of the Insolvency Office of the Ministry of Law, who oversees the DRS. , to assess the eligibility and suitability of the borrower. If the borrower meets the eligibility criteria and the OA is deemed suitable, the OA will assist the borrower in developing a DRS.

Pay Off Credit Card Debt

Although a borrower’s DMP or DCP status is not on public record and registered with Credit Bureau Singapore, its members (especially financial institutions) can access the data, DRS status is public record.

Also, unlike bankruptcy, individuals do not face travel restrictions, have a fixed time limit to repay their debts, and can maintain a regular savings account.

Regardless of a person’s circumstances, debt increases due to the inability to control expenses before they get out of control.

For this reason, it’s important to start financial planning early and not wait until debts pile up before seeking help. This is especially important for those who have entered the workforce and are accessing credit cards and personal loans for the first time.

Debt Settlement Vs. Credit Counseling

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This article is for informational purposes only and should not be relied upon as financial advice. Before taking any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial advisor about its suitability. Another in a process known as balance transfer. While this method works for some financial situations, it doesn’t make sense for everyone. Since transferring debt from one credit card to another may be a bad idea for your unique financial situation, you may want to weigh your options and consider other ways to pay off your debts directly.

This post discusses whether you can use one credit card to pay off another and presents other options for paying off credit card debt.

Ways To Consolidate Credit Card Debt

In some cases, you may be able to pay one credit card to another through a balance transfer. Balance transfers allow cardholders to transfer outstanding balances from one credit card to another, usually for a fee.

Credit card issuers often offer introductory periods for new credit cards that include zero-interest balance transfers or a low APR (annual percentage rate), giving you a way to consolidate — consolidate your debt into an account with their company.

Although it provides an indirect method of paying with one credit card on another, read the terms carefully before opting for this route. The initial periods are limited and after that period you may have to pay a higher interest rate.

Credit card companies usually require you to meet certain criteria for a balance transfer, including a good credit score. If you have bad credit, you may have trouble qualifying.

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Also, the approved credit limit may not cover the amount of your debt. Since lenders have different requirements and terms, shop around by checking the requirements and terms of different credit card issuers before applying for a balance transfer card.

To find out whether a balance transfer will save you money in the long run, you need to do the math.

Your current credit card has a 20% APR, you have a $2,500 balance, and you owe $250 a month. The loan will take 12 months to repay, and you’ll pay a total of $2,758 plus $258 in interest and fees.

Let’s say a new balance transfer card has a 5% APR (assuming the initial 0% APR ends after 12 months), and you pay a 5% balance transfer fee of $250 a month. The balance transfer loan will take 11 months to pay off and you will pay a total of $2,625.

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You may find that transferring the balance to a new card is worth your time and effort in this situation. Also, this calculation assumes the new card has no annual fee and the initial APR lasts 12 months. The introductory period for balance transfers lasts up to 6 months,

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