We downloaded his credit report and he has one of the best credit scores I have seen at 701. I was busy so I didn’t look at the report and I simply sent the message, you have an excellent score. I got another email and he was asking that I take a close look and advise, promising he was ready for open and honest feedback. He informed me he is going on pension in a couple of months and he wants to ensure that he goes on pension debt free. I wondered and went through the report again in detail and aha! I saw it.
This was his problem
I was too tired to explain and simple wrote;
Email your private banker and apply for a re-advance loan on your home loan of at least R378 000. If they ask you why you want the funds,……
Your home loan is the cheapest form of debt. You must be paying around 7% on your home loan. Your short term unsecured debt is the most expensive debt and I suspect you also have credit assurance on your credit cards and other loans. Your home loan amount is R2,5Mil and you are paying R19 750 monthly. Compare this to the credit card debts that you have, the total short term debt is R378 847 and yet you are paying R19 855 in monthly instalments.
You should have the R19 855 available after the credit cards are settled. I recommend that you use a portion of this to increase your home loan instalments because of your pending retirement.
So as I write this, the short term debts have been settled and he has increased his instalments on the home loan by R15 000 so he tries to pay as much as possible on the home loan before retirement
These are Nathi’s cards,
As I write this, my biggest regret is that he could have paid his home loan in full, if only he understood how this works or had contacted me about 5 years ago because as bad as it sounds, your banker is not there to ensure you make the most of your money.
Key lessons from this are:
- If you don’t understand how interest rates and banks work, you could end up struggling unnecessarily as you use the most expensive form of debt
- The credit scoring has got nothing to do with you; you do what they like, you will have an excellent credit score. He had 4 credit cards and because he was paying diligently, he has a good credit score. No one cares if he could do things better, to save himself money
- Have a good credit score anyway so that you can easily manoever but ensure that you don’t have too many debts
To understand more about what we did, read pages 139 to 141 of the book From Debt to Riches. Consultation fee was R1 500. He paid it in full, within minutes of me sending the message. I guess he was relieved. We are now entering into the next phase of his retirement planning i.e. making sure he reduces his expenses to be in line with his pension. Nathi is not his real name
Look out for our webinar that will be held on 23 March, more details to follow