YOUR MONEY: Settle credit card debt in full, or keep something back?

Question:

Covid was tough and I used a credit card to the value of R120,000 and struggled to pay. It was handed over. Over time, I’ve managed to save about R130,000. The collections company has offered me a discount and brought the debt down to R85,000.

I have the money in my flexi bond. Do I pay off the debt and start saving from scratch? I will still have R45,000 left. My bond would increase, but I would get rid of a large debt looming over my head.

— A Facebook Fat Wallet Community member

Answer: 

First off: congratulations on saving the R130,000, it’s not easy out there right now and any savings should be applauded.

As for the discount offer, first make a counter offer, and a lowball one. Offer, say, R60,000 one-off to settle. The collections company may take the view that something is better than nothing.

Either way, use your savings to pay off the debt as soon as possible. It’ll take the pressure off and enable you to start improving your credit score. You’ll still have some savings and will be able to continue building these up.

As for the flexi bond, the way they usually work is that extra money in the bond doesn’t reduce monthly contributions, unless you request that to be the case and then the excess money would no longer be available.

Rather, every month it means less interest is charged so you pay off a little more of the principal debt — hence you pay the bond off more quickly.

— Your Money team

We want to hear from you! Send questions to yourmoney@fm.co.za