If you have a number of debts that you’re repaying by way of instalments and one of them is an Access Home Loan/Mortgage Bond, you may be in a position to do your own “Debt Consolidation”. The interest rate on the Home Loan/Mortgage Bond would usually be lower than the interest rates on the other debts. It thus makes sense (if you have access to sufficient funds in the Bond) to draw those funds and settle the other debts. If you then pay the instalments that you would have paid to those other accounts into the Bond, you will get the benefit of the lower interest being charged on your Bond, which means that in the long term you will have settled your outstanding debts in a shorter period.
Alternatively, if you’ve been feeling the squeeze financially, you could free up some disposable income by only paying into the Bond a percentage (for example 75%) of the instalment that you would have paid to the other debts. This would free up the other 25% as disposable income.

Let’s look at an example : X has the following accounts:

• Home Loan (interest rate = 11%): Outstanding balance = R750 000, & has access to an additional R250 000;
• Credit Card(s): Average interest rate = 21%, Total outstanding balances = R100 000
• Clothing account(s): Average interest rate = 26%, Total outstanding balances = R20 000
• Furniture account(s): Average interest rate = 24%, Total outstanding balances = R60 000

X’s repayments are as follows:

• Home Loan: R10 350 monthly (to settle it in 10 years);
• Credit card(s): R3 100 monthly (to pay them over 48 months);
• Clothing account(s): R1 100 monthly (to pay them over 24 months);
• Furniture account(s): R2 400 monthly (to pay them over 36 months);

X takes R180 000 from his/her Access Bond and settles all of the other outstanding debts. The outstanding balance of the Bond is now R930 000.
SCENARIO 1: X adds the FULL instalments that he/she was paying to the other debts to the Bond repayment. This means that the Bond repayment increases from R10 350 to R16 950. The Bond will now be paid in full in six-and-a-half years (assuming the interest rate remains at 11%). Just reflect on that – X is completely debt-free THREE-AND-A-HALF YEARS earlier than expected!
SCENARIO 2: X decides that some extra cash would come in very handy every month, and is happy to pay off the Bond over 10 years. This would require only increasing the Bond instalment to R12 850 monthly. This means that X’s TOTAL monthly instalments have decreased by R4 100 monthly.

BE WARNED, though: BOTH scenarios assume that X DOESN’T incur additional debt after consolidating the original credit card, clothing and furniture accounts. Creating NEW debt obligations will change these scenarios.

(The idea for this article germinated from a question asked by a Fin24 reader and answered by Craig Torr of Crue Invest: http://www.fin24.com/Money/Money-Clinic/Debt/torn-between-credit-card-and-bond-repayments-20170526).
Thanks also to Mark Ansley for his valued input.
DISCLAIMER: Credit Balancing Services staff are registered Debt Counsellors, NOT Financial Advisors, and therefore make no claim to providing qualified Financial Services or advice.