Fed up with your debt sliding out of control? Consider consolidating it into one of the packages offered by banks and other specialist lenders, or into your home loan.
It is better not to have any debt at all, but if you are already in the thick of it, debt consolidation may be the next best step.
Consolidating your debt means borrowing money from one source to repay a number of other outstanding loans.
In this way you pool various debts such as your home loan, car loan, overdraft and credit card balances into one account and pay a single - generally lower - interest rate on all of these.
The main advantage of debt consolidation is that you pay less for your debt in the long run because of the lower interest rate. To make it really work for you, you should use what you save by consolidating to pay off your debt sooner.
A single debt is also easier to manage. You know how much you owe in total and you make one repayment every month.
You can consolidate your debt in two ways:
* Use debt consolidation packages offered by some banks and specialist
lenders; or
* Pool your debt into your home loan.
Debt consolidation packages
Debt consolidation packages are generally aimed at fairly wealthy people.
Investec Private Bank, BoE Private Bank and Origin (a division of Rand Merchant Bank) will only consider lending you money if you can afford to borrow R400 000 or more.
* Investec Private Bank:
Current rate 13,46 percent.
Steve Heilbron, head of Investec Private Bank says, the bank`s debt consolidation product, Private Bond, is priced off the Jibar (the Johannesburg Interbank Acceptance Rate). This is a short-term money market rate and is the rate at which the big banks lend money to each other for short periods.
The rate you pay depends on the amount of the loan as opposed to the value of the security offered and you can change from the Jibar-linked rate, which changes quarterly, to a normal variable rate.
You can make deposits and withdrawals limited to 10 percent of the capital balance during the quarter, but just before the start of the next three-month cycle deposits and withdrawals are not limited.
So, if your balance is R1 million at the beginning of the next quarter, you can withdraw or deposit R100 000 any time within the three-month period.
At least 50 percent of the collateral must be secured by residential property and the rest can be policies, shares or commercial property. You cannot use moveable assets such as your car or business equipment as collateral.
There is a R30-a-month fee for managing the facility but no fees for withdrawals and no additional settlement fees should you repay the money.
* BoE Private Bank:
Current Rate 13,50 percent
Brian Bechet, managing director of BoE Private Bank, says the private banking facility is available to high-net worth clients.
The minimum facility is R400 000 and while the bank may require some assets as security from you, the bottom line is whether you can afford to repay the facility you are asking for. The bank will assess each case individually.
There are no restrictions on the number of withdrawals you can make and you
don`t pay any penalties if you want to settle your full amount of the loan soon after being granted it. You are also not charged any monthly administration fees.
* Origin:
Current rate 13,25 to 14,75 percent
Origin`s single credit facility rate is 14,75 percent, but if you are regarded as a low-risk client and borrow less than 80 percent of the amount for which you qualify, you may get an additional discount of up to 1,5
percent. The rate you are offered will depend on the quality of your assets or security, as well as your current liabilities.
Origin accepts residential properties, unit trusts, listed share portfolios, the surrender values of life policies or a combination of these as security.
If you use more than 80 percent of your total facility, without providing additional security, your rate and repayments could increase because you pose more of a risk to Origin.
You need to have assets to support a R400000 facility and your household income should be more than R276 000 a year.
The monthly fee is R120 which allows limitless transactions on your account. There are no early settlement penalties. Origin may pay for certain bond switching costs.
* Home loan:
Current rates 13,3 to 15,5 percent
There is nothing stopping you from consolidating your debt into your present home loan provided that you have already repaid some capital. In other words, if your original home loan was R120000 and you have repaid R20 000, you can borrow the R20 000 again.
If your total debt (credit card, overdraft and so on) is more than this, you could consider taking out a second loan or moving your loan another institution.
One option is to go for a lower interest loan based on securitisation, such as First National Bank`s SmartBond or a loan from SA Home Loans.
FNB and SA Home Loans are offering loans at 13,3 percent at present, but will only lend you 70 percent of the value of your property. These rates change daily because they are based on the Jibar which fluctuates in line with the demand for money in the market.
You pay whatever the rate is on the day your
mortgage bond is registered and this if fixed for three months. After that the interest rate is adjusted according to the Jibar on a quarterly basis .
Securitisation is a method of funding whereby "parcels" of home loans are sold to institutional investors, such as merchant banks and pension funds, who receive the interest from these loans.
Absa Bank offers a useful home loan facility called the MultiPlan account which you can use to consolidate your debt. Your interest rate will depend on what you can negotiate with the bank which uses the base home loan rate, currently 15,5 percent as a starting point.
A nifty feature of Absa`s MultiPlan account is that your statement will reflect the different debts separately so you know how much each one is costing you. Also, you can specify that you want to repay your home in 10 years and your car over four years and each will be accounted for separately.
TIPS
* If you plan to take a second bond on your home or switch your loan to another institution, there are costs involved. Do your sums to make sure you are not being penny wise and pound foolish.
* Bear in mind that flexibility can be as important as low interest rates and that the securitisation products have limits on the number and amount of withdrawals you can make.
* If you want greater peace of mind and to know exactly what you need to repay for a certain period, consider a fixed or reducing loan offered by the banks.