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Use your bond as a resource
21 Jan 2010
Using your bond to consolidate your debt is a powerful financial resource, one which is often overlooked.
In practise, this means moving your short term debt (like credit cards and personal loans) into your home loan, and taking advantage of the reduced interest repayments. It is only available to homeowners who have equity in their property -homeowners whose mortgage is less than the value of their house.
It involves taking out a further loan on your property and using this amount to pay off your short term debts and then paying off the additional amount on your home loan over time.
If you have outstanding short term debt, then you should investigate using your mortgage to take advantage of these benefits, which include:
1. Lower interest rate.
2. One monthly payment as opposed to many small payments.
3. Lower fees.
4. If you overpay into your bond you can build up a 'buffer' in your account for 'rainy days'.
5. If interest rates decrease, your payments reduce.
Debt consolidation can save you thousands of Rands over the repayment period of your debt. The consolidated loan's interest rate becomes much lower than the multiple loans interest you were previously paying.
Debt consolidation allows you to take control of your finances, and to avoid the debt spiral which becomes inevitable with the use of unaffordable credit.
While it is not always advisable to take short term debt into the long term, it often allows the consumer additional time to pay off their debts. Debt consolidation has the added benefit of only needing to make one monthly repayment, so the chances of you neglecting that repayment are significantly reduced.
Debt consolidation is not a solution for desperate clients. It is key for those who are disciplined enough to take the savings created from consolidation and apply it into the bond to reduce the term and interest on the consolidated loan over the period. If consolidating your debt does not offer cash flow savings – then it is not being correctly applied.
Often clients only seek assistance when already in debt – but not when they are planning to add to their debt portfolio or increase their debt exposure. A good debt management expert will assist you in reviewing your monthly budget to ensure that the theoretical benefits of debt consolidation are realised.
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BondBusters is a member of the IDM Group.
IDM offers integrated financial consultation to consumers on their debt matters by facilitating intelligent solutions between lenders and borrowers.
IDM - Your partner in choosing the right debt solution.
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