A 22 Million Won Card Balance, a Jeonse Loan That Resets, and a Baby Two Years Away
Kim Ji-hoon and his wife bring a spreadsheet to their first meeting. Combined take-home pay is 5.4 million KRW a month; fixed costs are 2.6 million, variable spending 0.9 million, and existing loan payments 0.55 million. Their debts: a revolving credit-card balance of 22 million at 17.5% APR, an auto instalment balance of 9 million at 6.8% with two years left, and a 110 million jeonse deposit loan at 3.2% that resets every two years. They hold 4 million in a savings account as their only emergency reserve, and both are 34. A first-tier bank has already declined a consolidation loan because of the card utilisation rate; a savings bank has offered to lend 22 million at 9.9% over three years, and Kim's employer offers a 5 million won interest-free staff loan repayable over two years. The wife wants to empty the savings account to pay down the card this month. They plan a first child within two years.
1. Calculate the monthly surplus and assess whether the couple should use the 4 million won emergency reserve to attack the credit-card balance.
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Monthly surplus = 5.4 − 2.6 − 0.9 − 0.55 = 1.35 million KRW.
On pure interest arithmetic, repaying 4 million of a 17.5% balance saves roughly 700,000 KRW a year, far more than a savings account pays. The arithmetic is not the deciding factor here.
Essential monthly obligations are 2.6 + 0.55 = 3.15 million KRW. A three-month reserve is therefore about 9.45 million. They hold 4 million, roughly 1.3 months. They have already been declined by a first-tier bank, which means the normal fallback when an unexpected bill arrives - borrowing - is not reliably available to them. Liquidating the reserve converts a small interest saving into a real risk of re-borrowing at 17.5% or worse, and possibly missing a card payment and damaging the credit file they need for the jeonse renewal.
Better sequencing: keep the 4 million, take the employer's interest-free 5 million (about 208,000 KRW a month over 24 months), apply it to the card immediately, and direct the 1.35 million surplus at the card. That clears roughly 22 million in about 13 months. The reserve is then rebuilt from the freed-up payment rather than sacrificed.
2. Should the couple accept the savings bank's 9.9% consolidation loan? Explain how to decide, and what condition would make the answer change.
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Judge the loan against the marginal rate on the debt it replaces, not against a blended average.
If it refinances only the 22 million card balance, the saving is 17.5% − 9.9% = 7.6 percentage points, about 1.67 million KRW in the first year on a full balance, declining as it amortises. That is real money, and repaying the card through a loan also drops the utilisation rate, which is the very metric that caused the first-tier bank's decline - a second-order benefit worth pricing in.
The critical constraint is the payment. A three-year amortisation of 22 million is roughly 611,000 KRW of principal alone, plus interest, so total debt service rises from 0.55 to roughly 0.75 million KRW a month. Against a 1.35 million surplus that is feasible, but it competes directly with the stated plan to have a child within two years, when the household drops to one income.
The answer changes if the savings bank requires the auto loan or the jeonse loan to be rolled into the facility. Adding 9 million at 6.8% or 110 million at 3.2% to a 9.9% loan raises the blended cost and destroys the gain. Get written confirmation that the facility covers the card balance only, with no cross-collateral over the jeonse deposit.
3. Rank the couple's actions for the next twelve months and explain how the jeonse loan should be treated.
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Priority order:
- Protect the 4 million reserve; do not spend it.
- Draw the 5 million interest-free staff loan and apply it to the card the same week.
- Refinance the remaining card balance at 9.9% only on the no-roll-in condition; if refused, keep paying the card directly from surplus rather than accept a bundled facility.
- Freeze the card - repayment while spending continues is a treadmill, and utilisation is what blocked the bank.
- Direct the 1.35 million surplus to the card until it is zero, then rebuild the reserve to 9–10 million before the child arrives.
- Before the birth, review income protection on both earners; a single-income household with 141 million of debt is the exposure that matters more than 7.6 points of interest.
The jeonse loan should be left alone. At 3.2% it is the cheapest money they have, and prepaying it while a 17.5% balance exists is value destruction. But it is the largest balance and it resets every two years. A 100 basis point reset on 110 million is 1.1 million KRW a year - more than the entire benefit of the card refinancing. Treat the reset date as a scheduled planning event: start comparing lenders three months out, confirm the deposit is returned in full at lease end, and never let a lender collateralise it against consumer debt.