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5 rules of thumb on: the credit limit has been exhausted and the bank offers to take a loan

What do you do when you call from the bank and offer to take out a loan to close the overdraft?

Important information:

  • You’re misbehaving financially and spending more than you bring in. Repeatedly increasing your credit limit won’t help solve the problem. You must build a recovery plan that will allow you to live off the money you have and take care of settling the debts.
  • According to Bank of Israel regulations, banks are prohibited from allowing deviations from the credit facility, and therefore they can increase the credit facility or convert it into a regulated loan.
  • Minus is the most expensive unregulated loan there is!

What to do:

  1. Contact the bank and request a temporary increase in the credit facility, limited in amount and time, which gives room for action. The bank should be informed that the family has begun the recovery process and share with the bank the steps already taken.
  2. Immediately stop all non-mandatory payments in order to avoid the return of mortgage payments, checks and standing orders. Sometimes there is an option to grace (deferral of payment) on a mortgage for six months or three months.
  3. Immediately examine cheaper credit alternatives (loans from family, friends, study funds, etc.) for an interim period, until a comprehensive recovery plan is built.
  4. If the bank refuses to temporarily increase the credit facility, a loan should be requested upon deferral of payments for a short period, while coordinating expectations that at the time of redemption, a permanent loan will be required to settle the debts.
  5. If all these proposals are not possible, the deferral of payments should be requested from the suppliers and the entities that are supposed to deposit the checks and mortgage payments that will be returned.

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