Combining credit: good or bad idea?

[Foxhound5366]

TLDR version:
Question 1: Would you recommend combining/consolidating different forms of credit (e.g. credit card, overdraft, revolving loan) into a single new facility, assuming the total interest payments are reduced by doing this?
Question 2: Assuming interest rates are the same, is there any type of credit (e.g. credit card, overdraft, revolving loan) which is preferable to others when it comes to combining debt, and why?

It seems like a no-brainer to me to always combine debt if it allows one to get a lower overall interest rate, except for the old 'snowball philosophy' where one pays off debt by focusing everything on the smallest debt and then snowballing up as each facility is settled. If all you have is one very big snowball there is no ultimate difference on paper, except psychologically.

 

[genelock]

1. what amounts are we talking about?
2. do you have a flexi bond
3. when you consolidate the total premium will be less than previous premiums combined but ideally you need to pay in more to settle quicker
4. imo overdraft is the best option if big enough

 

[Foxhound5366]

1. what amounts are we talking about?
2. do you have a flexi bond
3. when you consolidate the total premium will be less than previous premiums combined but ideally you need to pay in more to settle quicker
4. imo overdraft is the best option if big enough

1. The amounts don't really matter, do they?
2. Nope, serial renter (I did come very close to buying a house last year if it earns me brownie points)
3. Yup I know. I'm not trying to save myself money on repayments (my intention is to pay off debt as quickly as possible) but rather just to save 'wasted' money on paying interest I don't necessarily have to (compared to alternatives).
4. My overdraft is my least favourite form of debt for two reasons: 1) having a negative bank balance really messes with your head (even if your salary can take you out of it); 2) Overdraft performance doesn't appear on one's credit record so you although you have this form of debt you're servicing 100% it isn't contributing to the strength of your credit rating. The only positive thing about an overdraft is no fixed monthly repayments, except that can also make it the most dangerous because you're not forced to pay it down like on other types of debt.

Personally I'm leaning towards a short-term revolving loan, because I've had good experiences with one before. Money remains accessible in it as soon as you start paying it down, the interest rate is great, and the fixed monthly repayments give a lot of certainty.

 

[genelock]

3. Yup I know. I'm not trying to save myself money on repayments (my intention is to pay off debt as quickly as possible) but rather just to save 'wasted' money on paying interest I don't necessarily have to (compared to alternatives).

good, just checking

4. My overdraft is my least favourite form of debt for two reasons: 1) having a negative bank balance really messes with your head (even if your salary can take you out of it); 2) Overdraft performance doesn't appear on one's credit record so you although you have this form of debt you're servicing 100% it isn't contributing to the strength of your credit rating. The only positive thing about an overdraft is no fixed monthly repayments, except that can also make it the most dangerous because you're not forced to pay it down like on other types of debt.

it's a personal choice and I understand what you mean. You feel it's difficult to "see" your debt in overdraft with balance changing drastically with salary payments etc.

However, I do not agree with what you said in terms of credit rating. Banks love you when you have an overdraft (more so when they see you managing it and it can be done)

Personally I'm leaning towards a short-term revolving loan, because I've had good experiences with one before. Money remains accessible in it as soon as you start paying it down, the interest rate is great, and the fixed monthly repayments give a lot of certainty

I also had experience with revolving credit loans. I also know that the interest is crap (less than credit card but still high. It takes a long time to get that out of the way

You're not stupid. Don't tell me you can't handle it in an overdraft situation. Work out your budget, keep an eye on your balance and stick to a plan. You'll pay this bull**** off in no time

 

[Foxhound5366]

However, I do not agree with what you said in terms of credit rating. Banks love you when you have an overdraft (more so when they see you managing it and it can be done)

You're making me want to go back and check, but I'm almost convinced off-hand that overdrafts don't appear on one's credit record. That means other banks can't see sh*t unfortunately, regardless of whether your current bank is happy with you being a good little worker bee lol. That makes it a shame, compared to a different form of credit.

 

[Pho3nix]

Overdraft doesn’t show up on credit profiles

 

[Greg C]

Overdraft doesn’t show up on credit profiles

Speaking from experience it does not show on your credit profile

Regarding your question:
If you have an access facility through your bond utilise this, lowest interest rate.

Ie I have a bond of R1.5 mill
I have paid off R300k
I am able to draw up on the facility back to the bond amount, I use the funds to pay off my other expensive forms of debt

If this is not available to you it gets a lot trickier in terms of saving
Credit cards : Interest rates range from 12-14% and up, lower if you are the elite but normal earners under the 1.5 mill earning threshold have higher interest rates on credit card

Overdrafts attract around 18% if not more

A revolving credit loan is your preferred option here. Can apply at a bank to consolidate your debt with them
I will put a disclaimer here though that very rarely unless your payments are excessive on interest

You rarely actually save interest at a considerable level after consolidating. You do depending on what they will charge you on the new credit loan. Baring in mind it will be on a 5 year term or even 3 just depends.

It is a good idea, HOWEVER unless there is a massive difference in one of your facilities/debt compared to what they will consolidate you into, it is not necessarily going to be positive in your favour

Personal loans like this also attract high amounts of interest and doesnt always make sense

My alternative advise is quite basic
Attack the highest interest rate facilities you have first, and service the monthly payments or expectations on the other lower interest amounts until you cleared your most expensive. You then may have the option to draw on your lower and payoff the higher saving you on the short term

This is not an exact science I am afraid. Just check your most expensive interest and go from there

 

[Kosmik]

Reading the comments here, its weird. Short of my homeoan, my credit card interest is next best ( very low, Repo + 5.5% ( its at 12.5% now I think? Repo NOT prime )). Overdraft is also low but thats a Prime + 2% so bit more than credit. Bond in all this is prime+0.25%

 

[Greg C]

Reading the comments here, its weird. Short of my homeoan, my credit card interest is next best ( very low, Repo + 5.5% ( its at 12.5% now I think? Repo NOT prime )). Overdraft is also low but thats a Prime + 2% so bit more than credit. Bond in all this is prime+0.25%

Lucky man. Those are good rates!

 

[Kosmik]

Lucky man. Those are good rates!

Not luck, good credit history, long time client and you don't get if you don't ask, especially as you become more wealth orientated.

 

[Greg C]

Not luck, good credit history, long time client and you don't get if you don't ask, especially as you become more wealth orientated.

The *Luck* comment is assumed you DIDNT ask. Apologies if I didnt put that in. But this is assuming you were offered or applied for a credit card and said nothing really. Banks systems give auto rates

 

[Foxhound5366]

Thanks for the feedback guys, I'm gonna have to grab a calculator and do some maths this weekend to work it out.

On paper an additional factor that confuses things is that different banks require different minimum payments in addition to the interest they charge: from my experience I know that FNB requires significantly more than Standard Bank, so I'm paying as much per month to FNB for my credit card as I am to Standard Bank, although I've got twice the debt at Standard Bank. Overdrafts are real sneaky because those fees get 'hidden' in your bank account each month, and then FNB complicates that too by giving quite a substantial overdraft credit each month if you've enjoyed a positive balance at some point in the month. Finally there's my good old Standard Bank revolving loan with its fixed monthly payments, and even it comes with a 'hidden' restriction that you can only withdraw 'extra' money from it after you've repaid at least 15% of it (so they seriously told me recently that I needed to pay in X in order to access Y).

I just posted this thread because I was curious about what y'all were already doing about this, because the majority of South Africans have multiple forms of debt (and more than 50% are in default apparently).