Credit card debt is a burden many individuals carry quietly. And while it may not be discussed openly, it’s certainly an issue that needs to be dealt with head-on in order to ensure individuals can escape the debt cycle.
That’s because the sky-high interest rates on credit card debt – ranging typically anywhere from around 25% to 29% per annum – can be crippling and force individuals to be constantly in a cycle of borrowing.
To combat this, the Debt Management Programme (DMP) offers individuals who have credit card debt in Singapore a way out of this cycle.
The DMP is run by Credit Counselling Singapore (CCS) and is designed to help individuals regain control over their finances and, ultimately, enable them to become debt-free.
Read Also: Understanding Debt Ratios – And Why It’s The Bedrock Of Your Wealth Building Journey
What Is The Debt Management Programme (DMP)?
The Debt Management Programme (DMP) is a formal debt repayment plan that’s coordinated by Credit Counselling Singapore (CCS), a non-profit organisation that provides financial education and debt advice. The DMP is targeted at individuals who are struggling with unsecured debts such as credit cards, personal loans, and lines of credit.
If you agree to repay your debts under DMP, the CCS will draw up a proposal and debt repayment schedule for you to repay each creditor. Typically, these monthly payments can be done at a reduced interest rate and over a more reasonable time period.
It’s important to note that the DMP does not write off your debts. But it does help you repay them in a more manageable and sustainable way.
Who Is Eligible
To be on the DMP, you must meet the following general criteria:
- Have total unsecured debts (e.g. credit cards, personal loans) of $10,000 or more
- Have total unsecured debts that are owed to two or more creditors
- Have been assessed to have sufficient payment capacity to repay all unsecured debts fully within a reasonable time
CCS will set up a one-hour counselling session with applicants and go through your expenses and debt to assess whether DMP is suitable for your situation. They will then create a payment proposal that needs to be approved by creditors.
Once the payment proposal is accepted by creditors, you can start making payments according to the terms. Applicants will be able to access support and guidance from CCS throughout the repayment period. While enrolled in a DMP, you’re expected to maintain strict financial discipline. That includes not taking on new debt, avoiding unnecessary expenses, and sticking to the repayment schedule.
Pros And Cons Of Joining The Debt Management Programme
For those feeling overwhelmed by multiple debts, the DMP offers several advantages. They include receiving guidance on managing your debts and possibility of being granted an extended period or moderated interest rate.
Furthermore, getting on a DMP avoids the more severe consequences of bankruptcy or legal action from creditors. And that can relate to the last benefit – emotional relief.
Being in debt and having to manage multiple payments can place many individuals under extreme stress. However, with DMP, individuals have a sustainable plan and structured path forward to getting out of debt.
Although entering into a DMP is not the same as declaring bankruptcy, it may still impact your credit score.
If you’re on the DMP, your status will be reported to the Credit Bureau of Singapore (CBS). Your status will also be reflected on your credit report. This will minimise the likelihood of you getting your future credit applications approved.
However, upon completion of debt repayment, your status of being on DMP will be updated and removed. With consistent and timely payments over time, you can rebuild your credit.
Once enrolled in the DMP, you may be restricted from taking on new credit facilities such as loans or credit cards.
This is to ensure that you do not accumulate new debts while trying to pay down your existing ones. While this certainly promotes financial discipline, and is probably what you’d need, it can also limit your financial flexibility in case of emergencies.
During your time on the DMP, you must stay fully committed to the monthly repayments. Obviously, that’s going to require some hefty budgeting and lifestyle adjustments.
Dropping out of the DMP can have serious consequences for your financial wellness, including renewed collection action or loss of negotiated interest reductions.
Other Debt Management Solutions
If the DMP isn’t suitable for your situation, there are other various schemes out there in Singapore that may be worth exploring if you want to successfully tackle your unsecured debt.
Debt Consolidation Plan (DCP)
The DCP allows you to combine all unsecured debts into a single loan with a participating bank and at a lower interest rate.
Unlike the DMP, the DCP is a commercial product and not a counselling service. As a result, it may be better suited for those with already-decent credit scores who want a more flexible repayment plan.
Debt Repayment Scheme (DRS)
The DRS is administered by the Ministry of Law’s Insolvency Office and offers payment plans for individuals who owe less than $150,000, allowing them to avoid bankruptcy instantly.
It’s more formal than the DMP and may involve stricter oversight. Individuals will need to settle their debts in no more than five years’ time.
Filing Bankruptcy
As a last resort, bankruptcy can provide legal protection from creditors and a structured process for discharging debt.
However, it does come with long-term financial and reputational consequences and should only be considered when all other avenues have been exhausted.
Read Also: What Happens When You File For Bankruptcy in Singapore?
