Dangers of debt consolidation without a plan
PUBLISHED 12 DEC 2016
Approximately 80 percent of those that default in December are highly likely to miss January payments. Missed home loan repayments rise on average by more than 10 percent in the December period, according to FNB Home Loans.
“We find that customers don’t intentionally use their bond money, however early salary payments and overspending quickly put consumers into a position where they aren’t able to meet their debt responsibilities at the end of the month,” says Calvin Ndlovu, head of operations at FNB Home Loans.
Around 30 percent of FNB Home Loan customers are paid early in December. To help consumers manage their cash flow, the division is running early debit orders, in accordance with the early pay days of South African corporates.
“Customers are welcome to contact the bank to request the debit order runs on the usual date, but this may put them in a position where they don’t have enough money for the debit order to run putting them in a risky position from a financial and credit perspective,” says Ndlovu.
Customers can call the bank up to four days before their debit order is due and request for a change in debit order date.
Ndlovu says there is an 80 percent higher chance of customers missing a January repayment, once they failed to repay December.
“We have seen a strong correlation between missing the December payment and the risk of also failing to pay January’s iinstallment” says Ndlovu. “This knock-on effect occurs as consumers are faced with having two bond repayments due in one month, as well as additional expenses such as school fees among other regular financial commitments.”
Consumers need to take into account the potential consequences of missing a bond iinstallmentto fund festive season spending.
“We find that for people who miss one repayment, it takes at least four months to catch up,” says Ndlovu.
One of the ways to avoid the dreaded default is to pre-pay into your home loan throughout the year.
“This is a far better and effective option than going into arrears. Not only will you save your credit record but you will also have the advantage of reducing the interest on your capital for the period that you have pre-paid,” says Ndlovu.