Racking up debt is as easy as snapping your fingers. One minute you are peacefully juggling loans and multiple credit cards and the next you are struggling with mountains of debt. Financial experts state that spiralling into debt isn’t a quick process. And it honestly takes little to no effort on your part.
You can get back on your feet thanks to various debt repayment methods such as debt consolidation plans (DCP).
So, you decide to apply for a DCP only to have your application rejected. And now you are back to square one but this time along with the debt you have you are also thinking of why your application was rejected in the first place.
Common reasons why your DCP application may have been rejected:
1. You don’t meet the income requirement
According to the guidelines set out by the Association of Banks in Singapore (ABS), to be eligible for a DCP, your annual income needs to be at least S$20,000 and below S$120,000. So, your application may have been rejected on the grounds that your income did not match this criterion.
2. You don’t have enough debt
We know what you’re thinking, how can a small amount of debt be a problem, right? Well, when it comes to debt consolidation, the amount of debt you have is extremely important.
To be eligible for a DCP, you need to have debt that is 12 times greater than your monthly income. So, if your debt falls short of this number, you will not be eligible to apply for a debt consolidation plan.
3. Your credit score leaves a lot to be desired
If you are applying for a DCP, it’s understood that you may not have the best credit score. Yet, many Singaporeans find their DCP applications being rejected due to a poor credit score.
See, banks don’t expect you to have an AA rating. But they do expect you to have a grade of B or C. A rating of D and below indicates that you have a serious problem with debt, so much so, that the banks that lent money to you had to write off these loans.
If you find that your DCP application was rejected, check your credit score. Chances are that your rating is D or below.
So, what do you do when your DCP application is rejected?
1. Attend a credit counselling session
If you have been trying to get out of debt but all of your attempts have been in vain, then you could consider attending a credit counselling session courtesy of Credit Counselling Singapore. A credit counsellor will sit with you, analyse your debt, and help come up with solutions.
If your problem with debt is exacerbated by addictions such as gambling or because of mental stress, the counsellor will also refer you to the appropriate agencies for you to seek help.
2. Improve your credit score gradually
If your application was rejected because of a poor credit rating, then you need to first build your credit score before applying for a DCP once again.
While working towards improving your credit rating, first make a list of the interest you pay on each credit product that you have. Then start by paying off debt which has the highest interest first. This is because the longer you delay payments on high interest accruing products, the worse your debt will get.
Two things you should keep in mind while paying your debt are:
- While paying off high-interest accruing products, do not stop making minimum payments on other financial products as that could adversely affect your credit score.
- If you do decide to take a personal loan to clear your debt, make sure that you are in a position to make the instalment payments every month. There is no point in taking a loan, paying off your credit card debt and then being unable to make the payment on your personal loan since it will only derail the effort you have put in to rebuild your credit score.
Do also keep in mind that banks may charge you a higher rate of interest than advertised because of your current credit score. But don’t let this deter you, because all things said and done, the interest is still lower than credit card interest rates.
3. Apply for a debt management program (DMP)
Credit Counselling Singapore also offers a debt management program that you can think of applying to. A DMP is a voluntary arrangement made between you and your creditors where you agree to pay a certain amount to your individual creditors every month over a period of time.
Keep in mind, that since it is a voluntary arrangement, not all of your creditors may agree to the repayment plan laid out. You also don’t get access to a credit card to take care of your daily needs like you do with a DCP. You will also have to attend mandatory sessions on money management.
Like your DCP status, your DMP status is also registered with the Credit bureau Singapore.
You may take longer to pay off your debts with a DMP than you would have with a DCP. But don’t let that stop you from applying for it since it is still better than declaring bankruptcy.
4. Debt Repayment Scheme (DRS)
What happens if you aren’t eligible for both, a DCP and a DMP? If you are in such a situation, then you can consider a debt repayment scheme.
It does, however, begin with you voluntarily applying to become bankrupt. It gets better, though, so, hear us out!
When you make a bankruptcy application with the High Court, the court may refer you to the Insolvency Office where an Official Assignee will see whether you are eligible for a DRS.
The problem with a DRS is that you can access it only after you first file for bankruptcy, so there are chances that the court doesn’t refer you to the Insolvency Office. Moreover, your DRS status will be on public record.
5. Budgeting and learning to live within a budget
If you don’t want to file for bankruptcy or consider a DRS, then your other alternative is to liquidate your assets, pay as much as you can, and then start ‘austerity measures’. But more importantly, you need to make sure that you stick to the frugal budget that you’ve set.
Having your debt consolidation plan application rejected isn’t the end of the world because there are solutions available. However, the most important thing to remember is that no matter which path you decide to go down in order to pay your debt, the fact that you are prepared to take your life back in your hands is what matters.
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