If you're swimming in heavy debt, it can be hard to keep track of multiple credit cards and loans. Consolidated debt can be an effective financial strategy for people struggling with personal loans. Getting your debts consolidated helps keep you organised, makes your monthly payments easier, and ultimately improves your financial situation. You'll also save money over time and all the stress that comes with it.

What is a debt consolidation loan?
In a nutshell, debt consolidation is combining all your debts into one single payment. In other words, instead of making multiple monthly payments to your old bank, you will only have to make one monthly payment to your new bank. You can only use debt consolidation plans for unsecured credit, or loans without collateral.

Apart from simplifying the payment process, debt consolidation can also help you improve your credit rating and lower your interest rates. Basically, you'll pay a lot less over time than repayment of individual debts, which will relieve financial pressure.

How does a debt consolidation loan works?
You will need a debt consolidation loan in order to consolidate your debt. Debt consolidation plans are currently available from all financial institutions that provide credit cards and/or unsecured credit facilities. If you want to get a debt consolidation loan, you don't have to be a customer of that particular financial institution.

Getting a debt consolidation loan
Here's what you have to do to qualify:

• An annual income of S$20,000 to S$120,000
• Net worth of personal assets not exceeding S$2 million
• You owe more than 12 times your income in unsecured debt

Individual banks or financial institutions decide whether to approve debt consolidation loan applicants.

As part of your first consolidation loan, your bank will also give you an additional 5% allowance over your total outstanding balance. You can use this allowance to pay for potential fees that may arise between the time the loan is consolidated and the time you receive the funds. It cannot be deposited into your checking account.

After you settle your debt consolidation plan, you only have one loan to pay. Although the loan term may be longer, the borrower gets a lower interest rate and doesn't have to deal with multiple debt collectors. 

After you settle your debt consolidation plan, you only have one loan to pay. Although the loan term may be longer, the borrower gets a lower interest rate and doesn't have to deal with multiple debt collectors. 

How does a debt consolidation loan affect my credit score?
The debt consolidation loan will be reflected in your credit bureau report if you choose to take it out. Making timely payments toward your debt consolidation loan can improve your credit score.