Today, we are sharing about debt consolidation and the pros and cons you need to know.
There are plenty of people in Singapore who have amassed a significant amount of debt on their credit cards (source from Straits Times) and have accumulated overdue debt. A lot of them are presently in the process of gradually paying it off but the process is very slow. It is also not as if this loan payment is the only expense that they need to deal with – they have to make arrangement for meeting other similarly critical expenses (home loan, car loan, renovation loan, business loan, etc) as well.
The biggest problem is that all of these debts carry different rates of interest of repayment. This only makes it even harder to keep a track of expenses and control them in the long term.
At the present moment there are a number of credit unions in Singapore that are offering people a chance to avail debt consolidation loans. For people, likes the ones who have been talked above, such loans are like god-sent opportunities since they allow you to collate all your debts in a single loan and take away the unnecessary and incessant headaches.
With these loans you can pay off all your debtors and concentrate on paying just one loan in a month. However, there are a few things that need to be taken into consideration before these loans are availed.
The main idea behind taking loans is to reduce the rates of interest you are paying in order to pay the loan off. So, you need to make sure that you are achieving that with these loans. The idea of availing these loans can be rather tempting. After all, you can dispose off all your credit card bills.
You do not need to make many payments to different lenders. This is something that can get to your head. The road to being debt free is made much smoother by these loans. However, there are a lot of other things associated with these loans that may make the situation even worse later on.
If financial experts are to be believed these loans are nonsense in most situations. One can jolly well do without them! However, it is really difficult to ignore these loans considering the benefits that they offer. It is also important that you keep in mind the fact that these are after all financial products – not charitable offerings.
Companies will not be offering them if they did not have any profit to make out of them. You need to take into account the time period and interest rate of the loans you are paying and the debt consolidation loan you are considering. Once you do the calculation and compare both will you be able to take the right decision.
In certain cases you may be paying a smaller rate of interest with consolidation but the loan repayment term may be much longer. That would mean that in the end you are paying much more than what you would have done with your credit card or other present debts. So, it is better to concentrate on paying them off in a shorter period of time.
It is not rocket science. All it takes is some financially responsible and mature behaviour on your part and you may have paid off the debt much quicker than you can realize.
There are several ways in which you will be able to manage your debt in a much better way than taking the conventional options like a debt consolidation loan. In case you are experiencing issues with your cash flow the first thing that you need to do is to create a budget detailing your income as well as expenses. This will give you a better idea of things and you will be able to come to a decision regarding the expenses that could be cut off in order to save money.
In this instance you can delete expenses that are not necessary and ones you can always do without such as eating out and going to the theatres to watch the latest flicks. Keep this spirit of abstinence till the time you are financially sound and then you can start enjoying life again. This will also make sure that you do not face any undue problems with your debt payment. As a general rule of thumb, your debts should not be more than 35% of what you are earning in a month.
The lower your income, the lower should be your debt percentage. For this, you should review your debts on a regular basis. There should ideally be only one source from which you have taken debt. This way, you will less heads to worry about and you yourself will be in a far better position to monitor your debts. It is also important that you pay off all your installments at the time they are supposed to be paid and in the right amount as well.
This will make sure that you do not have to pay the penalty charges that only make the situation far worse than it already is for you. In case you are unable to do so, get in touch with your lender and ask for any help that may come your way. One way to pay off debt quickly is to increase the frequency of payments. The second way is to make lump sum payments as and when you are able to. Whenever you have some additional money, ask your lender if you can use it to pay off a part of the loan.
However, you need to ask your lender if by doing so you will incur any penalty or not. Also ask them if any advance notification needs to be provided for the purpose. In case you have a lot of debts to deal with you can also start off by paying ones that carry the higher rates of interest. Normally the credit card debts are ones with the highest rates of interest. Hence, it could be prudent to start off with them. In case you are unable to pay the whole amount in one go, pay as much as you are able to.
Do share with us what you think. If you have more questions or thinking of having a debt consolidating loan, do contact us here.
As of 1st Oct 2015, www.mlaw.gov.sg has changed the licensed moneylenders interest rate in Singapore from 20% monthly to 4% monthly. At the i-Credit home website and our store front, we have changed or updated the information accordingly on the eve of 1st Oct 2015 as well.
Difference Between Old & New Licensed Moneylender Interest Rate Update?
In the New Interest Rate:
All borrowers will subjected to a 4% monthly interest rate for all income group. The amount of loan will be based on the yearly income of the borrower plus administrative fee. Below is the summary in table;
| Income Group | Licensed MoneyLender Interest Rate (Monthly) | Loan Amount |
|---|---|---|
| Less then $20,000 Yearly | 4% | Up To $3,000 |
| From $20,000 to $29,999 Yearly | 4% | Up to 2 Month's Income |
| From $30,000 to $120,000 Yearly | 4% | Up to 4 Month's Income |
| More than $120,000 Yearly | 4% | Any Loan Amount |
From now on, all income groups will be able to get a loan from i-Credit. Here’s what we need and you to take note of when you visit us;
Primary concerns that need your attention
- Do not forget to consider various alternatives before approaching a money lender including numerous financial assistance plans offered by different governmental agencies.
- Do remember your Singpass login details as well, since the licensed money lenders need to find out your annual salary through the IRAS website.
- Remember that the loan contract needs to be legally fulfilled as per the contractual terms. Hence, it should be calculated keeping your income and other financial obligations in mind.
- Carefully read and fully understand the terms and conditions of the loan contract before you agree to any of it. You must legally possess you own copy of the contract.
- Choose only the most favourable cash loan option by researching about different moneylenders, instead of rushing into a commitment.
In the previous interest rate, taken from our past blog post:
Here’s what you need to know regarding Licensed Moneylender’s interest rate according to the Registry of Moneylenders:
– 13 per cent Effective Interest Rate for secured loans, &
– 20 per cent Effective Interest Rate for unsecured loans ( personal type).
The old interest rate is capped if the annual income is less than $30,000. An ethical licensed money lender is to disclose to borrowers in writings what are the Effective Interest Rate of the loan amount. Do note that different license money lender company may have slightly different interest rates for their clients and lend them the money.
The Effective Interest Rate takes into account the compounding effect of the frequency of
instalments over a one-year period. This means that Effective Interest Rate better reflects the actual cost of borrowing over a one-year period. Visit https://www.mlaw.gov.sg/content/rom/en.html to find out more about how the Effective Interest Rate is calculated from 1 June 2012.
If your annual income is $30,000 or more, the caps above are not applicable and interest rate is to be agreed upon between the moneylender and the borrow.
In I-Credit, We give discounted interest for return customers with good record and credit rating. we typically offer 3 different sets of interest rates for different clients.
a) 11% Interest Rate per month: usually rendered to borrowers with good credit history and/or on time installment repayment.
b) 14% Interest Rate per month: for returning customers that have previous business relationship or record with us.
d) 18% Interest Rate per month: for new customers that have no previous business relationship or record with us.
Do note that the 3 different sets of interest rates are no longer in use in i-Credit business from 1st Oct 2015 onwards.
If you have any questions regarding the latest licensed moneylender interest rate, do contact i-Credit here, and we will do our best to answer all your queries.