Between credit card debt and various other personal loans, some find themselves struggling to pay back what they owe. This is made even worse when the debts are distributed across several banks and money lending institutions, making it even harder to manage repayment. In these cases, debt consolidation loans can be an excellent solution to clearing a major debt.
What are debt consolidation loans?
Several traditional financial institutions, as well as licensed moneylenders, offer debt consolidation loans in Singapore. A debt consolidation loan is a single loan that is taken to pay off debt from multiple other loans.
The bank or moneylender pays off any debts that you have with other such institutions and leaves you with one repayment plan that you need to commit to. As such, all the liability is transferred to the institution of your choice.
It is important to note that this does not clear your debts, but simply combines the outstanding unsecured debt into one repayment scheme. Still, there are a few reasons why this is still a preferable option over dealing with each loan individually.
Some debts can have exorbitant interest rates, far above what the loanee can afford. Case in point, most credit cards in Singapore charge an interest rate of well above 20% per annum. Even one year of interest could introduce a host of difficulties, much less several years. Not to mention, an individual may have several other loans to pay off.
Debt consolidation plans, however, provide much more affordable interest rates, even going below 10%. This means that in the long run, a loanee can save a considerable amount on interest alone. Even in the short term, monthly payments may be more manageable than those mandated by the unconsolidated loans.
Getting a debt consolidation loan is not just financially beneficial but also simplifies the repayment process. The loanee only needs to make payments to one institution, rather than having to manage their accounts in several banks or moneylenders.
Furthermore, with only one point of contact, administrative matters are also massively streamlined. Paperwork will go much smoother when there is no need to email and call several different correspondents.
Higher credit score
A credit score is a measure of how likely someone is to repay their debt. It is typically used by financial institutions to determine whether to accept credit card and loan applications, and sometimes even to determine the interest rates. One’s utilisation rate, or how much of one’s available credit has been used, is a significant factor in determining one’s credit score.
A utilisation rate of under 30% is generally ideal. So, if one leaves their credit cards maxed out, it will naturally harm their credit score. In contrast, by using a debt consolidation loan, borrowers can eliminate their credit card debt, lowering their utilisation rate and improving credit score.
While there are several benefits of getting a debt consolidation loan, borrowers should still consider their financial situation carefully before committing. Borrowers should ensure that they are in a position to repay the loan and that they will be able to commit to the repayment plan proposed. They also should ensure that they remain financially responsible, and are not tempted to spend more by the newly available credit.
But once a borrower has done the math and mental preparation, the next step is to find a reliable licensed moneylender. There are plenty in Singapore that provide quick loans, and borrowers need to do adequate research before picking one.
That’s when Easyloan comes in. Our extensive directory of money lending companies will help you make an informed decision when choosing the licensed moneylender that suits your financial needs best.