Mad Hon · Debt to income

Weigh up consolidating your debts

Weigh up consolidating your debts. A step-by-step Mad Hon guide for your Debt to income score, written for olim.

1. Know what has to be true for it to work.
Consolidating means taking one new loan to clear several existing balances. It is worth doing when the effective annual rate on the new loan, with its fees counted, is below the weighted average of what you pay now, and when the term does not stretch so far that a lower monthly payment hides a higher total. Those are two separate tests and an offer can pass one while failing the other.
2. Build the complete list, including what you have lost track of.
Write down every balance with its effective annual rate and its monthly payment: cards, the current-account overdraft, consumer loans, anything financed at a till. The Bank of Israel operates a central credit data register, and an individual can ask for their own credit report from it, which is the quickest way to surface something you have forgotten. Do this before you approach a lender, because their offer is shaped by the list too.
3. Compare the three routes on their own terms.
A bank consolidation loan is the ordinary route and the one you can compare across lenders. A loan drawn against a keren hishtalmut or provident fund is secured on money you already own, so it usually carries a lower rate, but it is limited to a share of the balance and the pledged savings keep working for the lender rather than only for you while it runs. Refinancing the mortgage to release equity is normally the cheapest rate of the three and the most consequential: it converts unsecured debt into debt secured on your home and spreads it over the mortgage term, so the monthly payment falls while the total paid can rise.
4. Count the fees, and ask about early repayment in writing.
A new loan carries a file-opening fee, and the loans you are clearing may carry an early repayment charge. Ask each existing lender in writing what settling early would cost, and ask each prospective lender for the effective annual rate rather than the headline rate. The Fair Credit Law measures its ceiling on the effective rate with fees folded in, which is a good reason to insist on that number.
5. Handle the behavioural half at the same time.
The predictable failure is that consolidation clears the cards, the cards then have room again, and a year later there are two debts where there was one. Freeze or reduce the card limits on the same day the consolidation completes, and lower the overdraft facility to match. Doing it later means doing it after the room has been used.
6. Expect being new here to show up in the offer.
The credit register holds Israeli data. A long, clean borrowing history built in another country is not in it, so an oleh with two years of Israeli record can be quoted worse terms than their actual history deserves. What answers that is documentation rather than argument: payslips, statements from the account the salary lands in, and an offer from more than one lender so the first number is not the only number.
7. Decide between consolidating and attacking the list as it stands.
If the rate difference is wide and the new term is not much longer, consolidating does real work. If it is narrow, the fees can eat it, and paying the highest-rate balance down first while keeping minimums on the rest gets there without a new commitment. Either way the clearing itself is the part that moves the score.

Weigh up consolidating your debts. A step-by-step Mad Hon guide for your Debt to income score, written for olim.

1. Know what has to be true for it to work.

Consolidating means taking one new loan to clear several existing balances. It is worth doing when the effective annual rate on the new loan, with its fees counted, is below the weighted average of what you pay now, and when the term does not stretch so far that a lower monthly payment hides a higher total. Those are two separate tests and an offer can pass one while failing the other.

2. Build the complete list, including what you have lost track of.

Write down every balance with its effective annual rate and its monthly payment: cards, the current-account overdraft, consumer loans, anything financed at a till. The Bank of Israel operates a central credit data register, and an individual can ask for their own credit report from it, which is the quickest way to surface something you have forgotten. Do this before you approach a lender, because their offer is shaped by the list too.

3. Compare the three routes on their own terms.

A bank consolidation loan is the ordinary route and the one you can compare across lenders. A loan drawn against a keren hishtalmut or provident fund is secured on money you already own, so it usually carries a lower rate, but it is limited to a share of the balance and the pledged savings keep working for the lender rather than only for you while it runs. Refinancing the mortgage to release equity is normally the cheapest rate of the three and the most consequential: it converts unsecured debt into debt secured on your home and spreads it over the mortgage term, so the monthly payment falls while the total paid can rise.

4. Count the fees, and ask about early repayment in writing.

A new loan carries a file-opening fee, and the loans you are clearing may carry an early repayment charge. Ask each existing lender in writing what settling early would cost, and ask each prospective lender for the effective annual rate rather than the headline rate. The Fair Credit Law measures its ceiling on the effective rate with fees folded in, which is a good reason to insist on that number.

5. Handle the behavioural half at the same time.

The predictable failure is that consolidation clears the cards, the cards then have room again, and a year later there are two debts where there was one. Freeze or reduce the card limits on the same day the consolidation completes, and lower the overdraft facility to match. Doing it later means doing it after the room has been used.

6. Expect being new here to show up in the offer.

The credit register holds Israeli data. A long, clean borrowing history built in another country is not in it, so an oleh with two years of Israeli record can be quoted worse terms than their actual history deserves. What answers that is documentation rather than argument: payslips, statements from the account the salary lands in, and an offer from more than one lender so the first number is not the only number.

7. Decide between consolidating and attacking the list as it stands.

If the rate difference is wide and the new term is not much longer, consolidating does real work. If it is narrow, the fees can eat it, and paying the highest-rate balance down first while keeping minimums on the rest gets there without a new commitment. Either way the clearing itself is the part that moves the score.