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Posted by / 20-Aug-2017 01:22

Consolidating debt with standard bank

It would be foolish to take money out of your home loan to buy a R15 000 television set and spend the next 10 or 15 years paying it off.

That would defeat the purpose of using such a cheap form of credit.

This would leave you with a single home loan of R790 000 and a monthly instalment of about R7 110, excluding fees, charges and insurance.

In this scenario, your monthly cash flow saving would be about R3 500 (the difference between what you were paying to service all your debt before consolidating it and what it would cost you after doing so).

On the other hand, credit cards, store cards and short-term loans incur interest of anything from 21 percent a year to 32 percent over six months.

For this reason, many people use their home loans to finance big-ticket items such as appliances or furniture, making sure they don’t stretch the repayments for such depreciating assets over the term of their bond.

People who apply for a debt consolidation loan are either already financially stressed or in danger of going that way.

At a glance, it seems a great idea, giving both interest savings and better cash flow. Penwarden says despite the interest saving each month, the reason you pay R3 500 less each month is that, instead of repaying your debts over three, four or five years, you are now extending that same debt to 20 years (the notional period of your bond).

The appeal of debt consolidation is that it lets you simplify your affairs by using one large loan to pay off all your smaller debts.

In this way, you go from having numerous creditors and credit agreements, with various terms, interest rates and monthly fees, to having one loan with one creditor and being liable for one monthly fee.

To ensure that your application is even quicker, make sure you have the following documents available: As a Category A Consumer, you’ll be covered (either to settle your outstanding obligation in terms of your credit agreement/facility or pay instalments towards your credit agreement) in the event of death, permanent disability, temporary disability, retrenchment, unpaid leave or short time. Representative APR 15% , Representative insurance rate 5.4%.

Critics of debt consolidation say it’s a “con” because it dupes you into thinking you’ve done something about your debt.

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