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If you're struggling, then you might want to consider a debt consolidation plan (DCP). A DCP, when used properly, can be a powerful tool to combine all your loans and simplify your repayment strategy.
Here are 5 things to know about debt consolidation to help you realign your finances:
Consolidation is just a fancy word that refers to the action of combining things together, usually into something that's more effective. Debt consolidation, therefore, just means the act of combining your debts.
A DCP helps you combine all your unsecured credit facilities (such as credit cards and personal loans) from different institutions into a single loan. Instead of struggling to keep track of several different loan types, interest rates and due dates, you get to simplify the debt repayment process by putting it all in one loan.
While taking on another loan to pay off existing debts may seem counterintuitive, a major advantage of a DCP is that you'll get to consolidate your debts at a much lower interest rate. Take a look at HSBC's Debt Consolidation Plan. Our promotional interest rates are far lower than the 24% to 28% annual interest rate charged by most credit cards in Singapore.
Let's say you earn a monthly salary of SGD6,000. You have debts amounting to SGD50,000, which you would like to pay off in 4 years:
| Unsecured credit facility | Outstanding balance | Interest rate (pa)[@article-loans-interest-rates] | Monthly repayment |
|---|---|---|---|
| Credit card 1 | SGD18,000 | 25.5% | SGD602 |
| Credit card 2 | SGD11,000 | 25.9% | SGD370 |
| Credit card 3 | SGD9,000 | 26.9% | SGD308 |
| Personal loan (4 years) | SGD12,00 | 11% | SGD310 |
| Total monthly repayment | SGD1,590 | SGD1,590 | SGD1,590 |
| Unsecured credit facility | Credit card 1 | Credit card 1 |
|---|---|---|
| Outstanding balance | SGD18,000 | SGD18,000 |
| Interest rate (pa)[@article-loans-interest-rates] | 25.5% | 25.5% |
| Monthly repayment | SGD602 | SGD602 |
| Unsecured credit facility | Credit card 2 | Credit card 2 |
| Outstanding balance | SGD11,000 | SGD11,000 |
| Interest rate (pa)[@article-loans-interest-rates] | 25.9% | 25.9% |
| Monthly repayment | SGD370 | SGD370 |
| Unsecured credit facility | Credit card 3 | Credit card 3 |
| Outstanding balance | SGD9,000 | SGD9,000 |
| Interest rate (pa)[@article-loans-interest-rates] | 26.9% | 26.9% |
| Monthly repayment | SGD308 | SGD308 |
| Unsecured credit facility | Personal loan (4 years) | Personal loan (4 years) |
| Outstanding balance | SGD12,00 | SGD12,00 |
| Interest rate (pa)[@article-loans-interest-rates] | 11% | 11% |
| Monthly repayment | SGD310 | SGD310 |
| Unsecured credit facility | Total monthly repayment | Total monthly repayment |
| Outstanding balance | SGD1,590 | SGD1,590 |
| Interest rate (pa)[@article-loans-interest-rates] | SGD1,590 | SGD1,590 |
| Monthly repayment | SGD1,590 | SGD1,590 |
Your total monthly repayment would amount to SGD1,590 – about 26.5% of your salary. Clearing off your debts in 4 years would mean paying a total of SGD26,334.76 in interest on top of your principal.
In contrast, here's how much you may save under HSBC’s Debt Consolidation Plan:
| Terms | Existing debt | Debt Consolidation Plan |
|---|---|---|
| Total outstanding balance | SGD50,000 | SGD52,500 (including 5% allowance[@article-loans-five-percent]) |
| Interest rate[@article-loans-interest-rates] | 25.5% pa 25.9% pa 26.9% pa 11% pa |
8.0% pa |
| Total monthly repayment | SGD1,590.25 | SGD1,281.68 |
| Total interest payable (over 4 years) | SGD26,334.76 | SGD9,020.56 |
| Interest savings | Not applicable | 66% |
| Terms | Total outstanding balance | Total outstanding balance |
|---|---|---|
| Existing debt | SGD50,000 | SGD50,000 |
| Debt Consolidation Plan |
SGD52,500 (including 5% allowance[@article-loans-five-percent]) |
SGD52,500 (including 5% allowance[@article-loans-five-percent]) |
| Terms | Interest rate[@article-loans-interest-rates] | Interest rate[@article-loans-interest-rates] |
| Existing debt |
25.5% pa 25.9% pa 26.9% pa 11% pa |
25.5% pa 25.9% pa 26.9% pa 11% pa |
| Debt Consolidation Plan | 8.0% pa | 8.0% pa |
| Terms | Total monthly repayment | Total monthly repayment |
| Existing debt | SGD1,590.25 | SGD1,590.25 |
| Debt Consolidation Plan | SGD1,281.68 | SGD1,281.68 |
| Terms | Total interest payable (over 4 years) | Total interest payable (over 4 years) |
| Existing debt | SGD26,334.76 | SGD26,334.76 |
| Debt Consolidation Plan | SGD9,020.56 | SGD9,020.56 |
| Terms | Interest savings | Interest savings |
| Existing debt | Not applicable | Not applicable |
| Debt Consolidation Plan | 66% | 66% |
In the example, consolidating your debts can save you SGD17,314.20 in interest payment – that’s a saving of 66%!
Another benefit of a lower interest rate is that it helps you pay down your debt faster. This is because the money you've saved by paying less interest can be used to increase the monthly repayments of your DCP, shortening your loan tenure.
The minimum monthly payment for most credit cards in Singapore is 3% of the outstanding balance. If you don't pay the required amount, you can be charged with late payment fees. This can create a vicious cycle of debt if you cannot afford to meet the minimum monthly payments.
In contrast, if you consolidate your debts under a DCP, you can choose your preferred loan tenure to make monthly payments more manageable. HSBC's Debt Consolidation Plan allows you to set a loan tenure from 1 year to 10 years, with a slightly lower EIR for 1 to 7-year loan tenures. The longer your loan tenure, the lower your monthly repayment amount.
However, a longer loan tenure means that you will be paying more interest over time. If you can afford to make higher monthly repayments, you should do so to avoid higher interest charges.
When you apply for a DCP, please do not use your existing unsecured credit facilities as this additional amount utilised will not be consolidated. Once your DCP application is approved, all your existing unsecured credit facilities will be closed or suspended.
However, under HSBC's Debt Consolidation Plan, your HSBC Visa Platinum Credit Card comes with a revolving credit facility to help you manage your daily expenses. You won't have to pay this card's annual fee, as long as it remains under the DCP. The limit of the revolving credit facility will be fixed at one time your monthly income. Of course, you can choose not to use the full limit, or choose not to use the facility at all.
Please note that we are no longer offering new HSBC Visa Platinum Credit Cards.
Not everyone with debt will automatically qualify for a DCP. To be eligible, you must:
If you meet the requirements above, here's another critical question you'll have to consider before taking up a DCP: will you be able to stay-debt free after successfully paying off your debt consolidation loan?
Staying out of debt doesn't just mean clearing off existing debts – it involves changing your spending habits that got you into debt in the first place. It won't make sense to take on a loan to pay off existing debts, only to pile them on again after your loan has been cleared. If you don’t plan on changing your spending habits, taking on a DCP will only extend your financial woes. On the other hand, if you're ready to make changes in your budget and stick to them, a DCP may help you through the process of becoming debt-free.
Do a bit of housekeeping – find out how much you owe, and how much it's costing you every month. If you have substantial high-interest debts or struggle with making monthly repayments, a DCP may be a good option to help you cope.
If you're struggling with debt, don't be afraid of reaching out for help – being debt-free is too important to let shame or embarrassment get in the way. Take charge of your finances with HSBC's Debt Consolidation Plan now.
Combine your debts into one for easy-to-manage loan repayments.
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