Best way to consolidate debt

[Drifter]

I had a bit of an emergency in Dec 2013, and urgently needed a personal loan. I managed to get one, but at an insane interest rate, partly because I had a judgment against my name from 5 years ago. The judgment has no been removed off the credit bureaus, and I have a clean record once again.

I need to settle this loan with one at a lower ineterst rate. What would be the best approach?

I know it doesnt make sense to make debt to pay debt, but in this instance I can save a load if I can get the interest rate lower, so basically, I'm just "moving" the debt.

 

[MKFrost]

Maybe the first step should be to ask what the settlement will be like on the existing loan i.e. see what charges there might be for early settlement so in essence get the total cost involved to settle it early.

Then go shop for a new loan and see what interest rate you can get. Once you have that you will be able to see whether it will be worth it to switch. Important that you not just look at the monthly payment that might be lower but at the actual total cost of the loan. No use switching to a loan with a lower monthly cost if in the end it will cost you more i.e. longer term.

 

[werfie]

Hmmm... I don't see a problem with this. If you a Apply for new debt, just make sure the total repayment over the period will be less than the current one. Paying R1000 over 24 months is better than paying R800 over 36 months.

It definitely makes sense to pay debt with debt, PROVIDING that you pay the debt with the highest interest rate first, and you don't do so with a facility that may have a lower interest rate/repayment amount, but over a longer period.

Also be careful to tax an asset to pay some other short term debt. I.e. don't take money from your home loan to pay a credit card.

I have also done this. I for instance paid a Standard Bank credit card with an FNB credit card. The rate on the FNB card was slightly higher, but I saved a crap load on Standard Bank fees by having to keep my accounts open purely because the credit card had a balance. So the amount I paid more on the FNB card a month, was less than what I saved on bank costs.

My 2c

 

[Drifter]

True that, was considering approaching my bank for a RCP.