Personal Finance

Which Is Better – Debt Consolidation Or Personal Loan?

March 29, 2023

Debt consolidation and personal loans are two popular financial options for individuals looking to manage their debt and improve their financial situation. One question I hear all the time is “which is better – debt consolidation or personal loan?

There is no right or wrong answer to that question. Both options come with their own pros and cons, and the choice between them ultimately depends on the individual’s specific financial situation.

In this article, we will compare and contrast debt consolidation and personal loans, helping you to determine which one is better for your unique needs.

What Is A Debt Consolidation Loan?

A debt consolidation loan is a type of loan used to pay off and combine multiple unsecured outstanding debts into one single monthly payment.

What this means is that instead of paying multiple lenders at different interest rates, and due dates, you consolidate all your debts to make a single payment each month.

The idea behind debt consolidation loans is to simplify debt repayment by merging multiple high-interest debts into a single lower-interest loan, helping you save money on interest and reducing the overall debt repayment period.

What Is A Debt Consolidation Plan?

A debt consolidation loan and a debt consolidation plan (DCP) are similar. The only difference is that debt consolidation plans are offered strictly by banks, and cannot be used for all types of unsecured debts.

Unsecured loans under DCP that can be included in loan consolidation in Singapore are personal loans, credit card debts, and credit lines.

Unsecured loans such as education loans, car loans, renovation loans, student loans, business credit loans, and medical loans are not included in Debt Consolidation Plan (DCP).

Debt Consolidation Loan Vs Personal Loan

As we have seen above, debt consolidation loans in Singapore combine multiple debts into a single loan that is repaid monthly.

Another thing to note is that when taking out a loan to consolidate your debt, that loan can only be used to consolidate unsecured debt. Unsecured debts are debts that are not tied to collateral, while secured debts are tied to collateral.

Debt consolidation loans are best for individuals with good credit ratings who have multiple outstanding debts with high-interest rates and who want to simplify their debt repayment process by making a single monthly payment.

A personal loan on the hand is a type of unsecured loan advanced by lenders to individuals for various purposes. This is given to you as a lump sum, and what you do with the loan is solely your decision as you don’t have to justify the loan.

The interest rate charged on a personal loan is largely dependent on your credit score. If you have a good credit score, you might get a lower interest. If your credit rating is bad, you’ll get a higher interest on your loan.

Once your loan has been approved, you’re expected to pay back the loan within a specified time, as well as the interest rate.

Keep in mind that if you do not qualify for a Singapore debt consolidation loan, you can take out a personal loan to consolidate debt since a personal loan can be used for anything.

Pros And Cons Of A Debt Consolidation Loan Vs Personal Loan

The answer to the question “which is better – debt consolidation or personal loan?” can be derived from the pros and cons of each loan type. Be sure to consider the benefits and drawbacks before making your decision.

Debt Consolidation Loan


  • Simplifies debt repayment by merging multiple high-interest loans into a single lower-interest loan
  • Can help reduce overall interest costs
  • Offers the potential for lower monthly payments
  • Can help your credit score improve as focusing on paying a single debt can make monthly repayments easier.


  • The loan may have a longer repayment term, which could result in paying more interest over time
  • May not be available to individuals with poor credit or low income
  • Can only be used to consolidate unsecured loans
  • Can only be used for debt consolidation and no other purpose

Personal Loans


  • Offers flexibility as loan can be used for debt consolidation or any other purpose
  • Can be used to settle both secured and unsecured loans
  • If you don’t qualify for debt consolidation, you can get a personal loan
  • Quick approval and disbursal compared to debt consolidation loans.


  • May not provide as much debt relief as a debt consolidation loan
  • Higher interest rate compared to debt consolidation loans
  • Shorter repayment periods can result in high monthly payments
  • The flexibility of use can make you divert the funds to other purposes and end up in more debt.

What To Consider Before Applying

Before applying for a debt consolidation loan or enrolling in a debt consolidation plan, there are several important factors to consider:

      1. Eligibility

To apply for consolidation loans, you have to be a Singaporean or a Permanent resident. You’ll also need to have a stable income between $30,000 and $120,000, have assets worth $2 million, and the debts you wish to consolidate must be up to 12 times your monthly income.

These requirements are strictly for banks or FIs offering DCPs. Money lenders will has less stringent requirements.

      2. Credit Score

Your credit score will play a major role in determining your loan terms and interest rate. Individuals with good credit scores are more likely to secure a lower interest rate, while those with poor credit scores may have limited options or be denied altogether.

      3. Debts

It’s important to know exactly how much you owe and to whom. This information will help you determine the best way to consolidate your debts and choose a debt consolidation plan or loan that fits your needs.

      4. Interest Rates

Look for a debt consolidation loan or plan that offers a lower interest rate than your current debts.

      5. Repayment Terms

Consider the repayment term of the loan or plan, as well as the monthly payment amount. Make sure that you are comfortable with the terms and that they are affordable.

      6. Fees

Look for a debt consolidation loan or plan with minimal fees. Some lenders charge transfer fees, annual fees, and closing costs.

      7. Impact On Credit

A debt consolidation loan or plan can have a positive or negative impact on your credit score. If you use it as a tool to make monthly repayments easier, you can improve your score. However, if you’re not disciplined and fall back into bad money habits, you’ll hurt your credit score.

Where To Get A Debt Consolidation Loan

The major places you can get a debt consolidation loan are from banks, licensed money lenders in Singapore, or Credit Counselling Singapore (CCS).


Banks offer debt consolidation plans, although they may have strict eligibility requirements compared to money lenders. In addition to the eligibility requirements above, individual banks may have additional requirements.

Banks might offer promotions on debt consolidation. Be sure to shop around for the best loan with the best interest rates.

Licensed Money Lenders

When you choose to consolidate your debts with a money lender, the requirements are less strict compared to banks as there is a lot of flexibility.

However, bear in mind that the maximum interest they can charge is 4%. Approval and disbursement are faster (in a few hours), and you won’t incur additional charges except for admin charges capped at 10%, and late payment charges if you default.

Credit Counselling Singapore (CCS)

This is a non-profit governmental organisation that offers a debt consolidation plan. Their requirements are very similar to banks, but the good thing is that you’re paired with a debt counsellor who will assist you to plan and manage your debt better.

You Too Can Become Debt Free

At this point, you should have been able to answer the question of “which is better – debt consolidation or personal loan”.

A debt consolidation loan is great if you have multiple debts with high-interest rates, stable income, and a fair credit score. If you don’t meet the requirements, you can still consolidate your debt with a personal loan.

GS Credit, a licensed money lender in Singapore offers debt consolidation loans and personal loans at a low-interest rate. We can help you manage your debt, and combine them into a single monthly payment so you can become debt free in a short time.

Simply contact us right away to speak with a loan expert, or apply online for a debt consolidation loan.

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