- These days, many of us live with debt because we want things that we can’t afford to buy outright.
- This means taking a loan, whether it be a bond, or an amount that you owe to a clothing shop.
- If you have a steady income, allowing yourself to get into at least some debt isn’t necessarily a bad idea.
If, for example, you’ve realised you’re paying off someone else’s bond by renting a property, you might want to consider buying your own home. Most of us don’t have the kind of cash required to pay for a property upfront, so we have to take out a bond with a bank or other provider.
The danger comes in when you get into too much debt. This can often happen when an unexpected expense crops up, such as your car breaking down. If you haven’t budgeted for these kinds of emergency expenses and have to rack up more debt than you can manage to pay off, things can get out of hand, and you might not be able to pay all your accounts every month.
When that happens, one can be tempted to use a credit provider such as a credit card to pay another debt such as a home loan. When this happens, people can get into a spiral of debt from which they can’t escape, racking up more and more debt every month, with no way in sight of how to get out of the mess. That’s when you need to consult a debt counsellor for advice on how to extricate yourself from the situation.
So, can you pay your bond with your credit card?
The answer would be ‘no’ for the very reasons we’ve talked about above. If you’re battling to make all your monthly instalments or you’re using your credit card to pay off another debt, it’s time to get professional assistance in the shape of a debt counsellor. They can help you draw up a budget to ensure you strictly manage your finances.
They’re experienced at finding changes you can make to your budgeting, and can also approach creditors on your behalf to negotiate to reduce your monthly instalment. This process is informal, but there are more formal avenues you can take. If your creditors are unwilling to negotiate different repayment terms, your debt counsellor can help you with a debt review plan through the courts.
Make your bond work for you
Obviously, banks aren’t charities; they’re in business to make money. That’s why they charge much higher interest rates to anyone who borrows money from them than they do to people who deposit money with them. You might, for example, be earning just 2% interest on a positive balance in a savings account, but a much higher rate on your home loan. But this is where you can get clever.
Instead of keeping any spare money you have in a savings account that’s earning you little interest, put it into your bond account. You’ll then be getting the interest rate the bank charges on your loan as positive interest on the money you deposit.
Let’s look at an example
If you have a bond for R1.5 million, and you deposit an additional R100 000 into your home loan account, you’ll be charged interest on R1.4 million, not R1.5 million. That can make a substantial difference, and you’re using your bond as an interest-bearing account. If you need to, you can also withdraw the money.
Negotiate a good deal
Incidentally, never accept a lender’s offer in respect of interest rates they want to charge you for a home loan. Most lenders are open to some form of negotiation, so it’s pretty smart to approach more than one lender to make sure you get the best deal.
Think about it this way: banks and other lenders want you to borrow money from them so that they can charge you interest. They’re in the ‘pound seats’, quite literally, so anything you can do to lower what they charge you for a loan is worth doing. Don’t sign anything until you’ve read the fine print, and ensure you understand what you’re in for over the next few years.