Credit counselling vs. debt consolidation

If you are struggling to manage your finances, you may have considered debt consolidation or credit counselling as a way to regain control of your budget. While both could be viable options to help get you out of debt, it is important to understand exactly how they work and their major benefits and drawbacks before committing to any processes. Credit counselling, debt consolidation plans (DCP), and debt repayment schemes (DRS) sit at different points in the debt-help journey. Credit counselling focuses on budgeting, behaviour, and negotiated repayment support. DCP is a structured refinancing route for eligible unsecured debt. DRS is a formal pre-bankruptcy scheme, not a substitute for either of the first two.

What is credit counselling?

Credit counselling is a form of financial assistance often offered by non-profit organisations that involves working with a qualified professional who will assess your financial situation and provide advice regarding how best to manage your debts. This includes developing a budget plan to help you identify areas where you can save money and helping you negotiate payment plans with creditors or lenders. In some cases, credit counsellors may also help you determine whether filing bankruptcy is the right option for you.

However, it's important to remember that credit counselling does not involve providing loans or other forms of financial assistance. It's more about providing guidance and support in order to help you better manage your finances and make informed decisions regarding your money.  You should also be aware of the fees charged by different credit counselling organisations.

What is debt consolidation?

Debt consolidation is another popular option for managing debt in Singapore. It involves combining all of your existing debts into a single loan with a one interest rate. This can help lower your overall monthly payments by reducing the number of bills you’re paying each month, as well as reducing the amount of interest charged on those bills. The idea is to make it easier for you to keep track of your debt and manage them.

For DCP eligibility criteria and what to expect after you apply, read the Debt Consolidation Plan (DCP) guide.
To estimate repayments across tenures, use the debt consolidation calculator.

Credit counselling vs. debt consolidation: a breakdown

When it comes to deciding whether credit counselling or debt consolidation is more suitable for you, your best bet is to weigh up the pros and cons and carefully consider how they fit in with your personal financial circumstances and needs.

Generally, credit counselling is recommended for individuals who are feeling overwhelmed with their debts and want to work with a professional in Singapore to better understand and manage their finances for the long run. On the other hand, debt consolidation is ideal for those who can afford monthly payments but want to streamline and simplify their monthly payments. It is also best for if you have good credit, as that will allow you to secure a lower interest rate and reduce your overall fees.

Quick way to tell which route you’re looking at

• Choose credit counselling / DMP if you need help restructuring your repayments, building a budget, and getting support with creditors.

• Choose DCP if you may still qualify for a structured refinancing route and want to turn multiple unsecured balances into one repayment plan.

• Review DRS only if your debt situation is already moving into a more formal insolvency-related stage.

Take a look at the table below for a breakdown of the pros and cons of the two financial strategies.

Which option fits which situation?

Use this quick rule of thumb:

• If you need guidance, budgeting support, and help negotiating a workable repayment arrangement, start with credit counselling.

• If you may still qualify for a structured refinancing route and want one clearer repayment plan, start with the DCP guide.

• If you want to check the common DCP benchmark before anything else, use the eligibility self-check.

• If your debt situation is already more serious and you are reviewing formal alternatives, read the DRS guide.

Sources

MoneySense: debt-help options in Singapore – https://www.moneysense.gov.sg/managing-debt-what-can-you-do/
Credit Counselling Singapore (CCS): Debt Management Programme – https://ccs.org.sg/consumer/dmp/
DBS and HSBC debt consolidation guidance for DCP context – https://www.dbs.com.sg/personal/loans/personal-loans/dbs-debt-consolidation-plan & https://www.hsbc.com.sg/loans/products/debt-consolidation/faq/