Discover how the Debt Consolidation works in Singapore with this guide. Learn eligibility criteria, required documents, benefits, and tips to improve your chances of approval.
Managing multiple loans and credit cards in Singapore can quickly become overwhelming, especially when each comes with different interest rates, repayment schedules, and minimum payments. Before you know it, you are keeping track of multiple repayments and due dates every month.
In this step-by-step guide, we will walk you through how debt consolidation works in Singapore, who it is suitable for, and how it can help you simplify your repayments and regain control of your finances.
What Is Debt Consolidation?
Debt consolidation means combining multiple outstanding unsecured debts (credit cards, personal loans) into a single loan or repayment plan. The goal is usually to simplify repayments, reduce the interest rate, or both. This allows borrowers to pay down the principal faster and restore financial breathing room.
In Singapore, there are two common debt consolidation routes:
1. Personal Loan
A personal loan with a higher loan amount and longer repayment tenure is used to fully pay off existing unsecured debts, such as credit cards and other personal loans. This consolidates multiple monthly payments into one fixed instalment, often at a lower interest rate than credit cards.
2. Debt Consolidation Plan (DCP)
A Debt Consolidation Plan is a structured programme offered by participating banks and only a few licensed moneylenders. It is designed specifically for borrowers who are already heavily in debts. Under a DCP, all eligible unsecured debts are combined into a single loan with a longer tenure and reduced interest rate.
Unlike a regular personal loan, a DCP comes with stricter eligibility requirements. While it helps borrowers regain control of their finances and avoid further escalation, it may also limit access to new credit during the repayment period.
Debt Consolidation: Banks vs Licensed Moneylenders
Debt consolidation through banks and licensed moneylenders works differently, and it is important to understand the distinctions. Banks typically offer Debt Consolidation Plans or Debt Management Programme (DMP) with lower interest rates, longer repayment tenures, and stricter eligibility criteria. Approval is usually based on your credit score, income, and existing debt levels, and banks may require more documentation.
On the other hand, a few licensed moneylenders in Singapore provide debt consolidation loans. They are generally more flexible with eligibility, making them an option for borrowers who may not qualify for a bank loan. However, borrowers should exercise caution, as taking on any new loan can increase the total repayment amount if not managed carefully.
Key Differences in Debt Consolidation: Banks vs Licensed Moneylenders
This table highlights the main differences between debt consolidation through banks and licensed moneylenders in Singapore:
| Features | Banks | Licensed Moneylenders |
| Eligible Debts | Only debts owed to banks can be consolidated. | Only debts owed to licensed moneylenders can be consolidated. |
| Debt-to-Income Ratio | For borrowers whose total debts exceed 12× their monthly income. | For borrowers whose total debts are below 6× their monthly income. |
How to Apply for a Debt Consolidation Plan in Singapore
Whether you are applying or consolidating through a bank or licensed moneylender, knowing the right steps and preparing the necessary documents in advance can save time, reduce stress, and increase your chances of approval. Use this practical checklist to guide you through the debt consolidation application process.
1. Work Out Your Numbers
- List each debt with its balance, interest rate, and minimum monthly payment.
- Calculate your total monthly outflow and overall outstanding principal.
- Knowing your numbers helps you choose the most suitable consolidation plan.
2. Compare Debt Consolidation Plans
- Look at EIR, loan tenure options, processing fees, and early repayment penalties.
- Check eligibility requirements—banks and licensed moneylenders differ.
Tip: Loan City can help you save time by assessing different banks and licensed moneylenders at once.
3. Prepare Your Documents
- Identification: NRIC (Singaporean/PR) or passport + work pass (for foreigners).
- Income proof: Latest 3–6 months of payslips, employer letter, CPF contributions, or bank statements.
- Proof of address.
For licensed moneylenders: Some may require confirmation of Voluntary Welfare Organisation (VWO) support if you are applying under certain relief schemes.
When Should You Consider Debt Consolidation?
Debt consolidation can be a useful tool for simplifying your finances and reducing interest costs, but it may not always be the right solution for everyone. You should always consider your situation carefully before proceeding.
Good Reasons to Consolidate:
- Your combined monthly payments are higher than what a single consolidated loan payment would be.
- You can secure a low-interest personal loan with an effective rate lower than the weighted average of your existing debts.
- You want one single monthly payment to reduce the risk of missed payments.
When Consolidation May Not Help:
- If the new loan’s interest and fees are equal to or higher than your current debt costs.
- If you consolidate your debts but continue accumulating new balances on credit cards, which can increase your total debt.
- If you have secured debts or ongoing legal actions: consolidation will not remove secured liens or stop enforcement in some cases. Professional debt counselling is recommended.
How to Increase Your Chances of Approval for Debt Consolidation
Applying for a debt consolidation loan can be smoother if you take steps to strengthen your financial profile. Follow these tips to improve your chances of getting approved:
- Improve Your Debt-to-Income Ratio
Pay down revolving credit balances before applying to lower your overall debt relative to income. - Show Stable Employment and Income
Clearly document your earnings with CPF contributions, recent payslips, or an employer letter. - Consider a Guarantor
Applying with a trusted guarantor can increase approval likelihood, especially if your credit profile is borderline.
By taking these steps, you can present a stronger application and improve your chances of securing a debt consolidation plan that fits your needs.
Common Misconceptions About Debt Consolidation in Singapore
People often misunderstand debt consolidation, and these myths can stop them from exploring it as a helpful financial tool. Some of the most common misconceptions include:
1. Anyone is Eligible for Debt Consolidation
Not all borrowers qualify. Banks and licensed moneylenders have strict eligibility criteria based on income, total debt, and credit history.
2. Debt Consolidation Does Not Affect Your Credit Score
While it can simplify payments, taking on a new loan may temporarily affect your credit score, depending on how you manage it.
3. All Types of Loans Can Be Consolidated
Only unsecured debts, like personal loans and credit card balances, are eligible. Secured debts, like mortgages or car loans, usually cannot be consolidated. Debt consolidation through banks only applies to bank debts, while licensed moneylenders can only consolidate debts owed to them.
4. Debt Consolidation Will Get Rid of All your Debt
Consolidation helps restructure repayment, but it does not eliminate debt overnight. Discipline and a clear repayment plan are still necessary.
Understanding these misconceptions can help borrowers make informed decisions and use debt consolidation effectively to regain control of their finances.
Find the Right Debt Consolidation Plan With Loan City
Debt consolidation can be a powerful tool when used responsibly. With Loan City, you can compare and find a low interest personal loan or a suitable Debt Consolidation Plan that fits your needs.
Check your loan eligibility in Singapore and choose the best personal loan to simplify repayments.
