Settle credit card debt vs fixed saving

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techedemic

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Hi all,

Plea: Please don't bash my financial decisions up to this point. I know some of the things I did wrong, especially the amount of credit card debt I currently have. This came through unforeseen spending while planning a wedding and honeymoon. I'm looking for suggestions and if you're going to bash me about everything I did wrong in the past, please rather don't post... I know where I made the mistakes, I won't do it again...

I'm in the following posistion:
Currently Owing
  1. Credit Card 1 - -R15,000
  2. Credit Card 2 - -R3000
  3. TV License - -R265
  4. Municipal Account - -759.05
  5. Car service (next 2 weeks)- -3000.00
Funds Available
  • Fixed investment 1 - R31,000 (early withdrawal penalty of R2200, 3 years to go)
  • Fixed investment 2 - R3,500 (no withdrawal penalty)
  • 1 x 1 Oz Kruger Rand - R14,500 (sentimental value)

These are young investments and I contribute almost R3000 to above investments every month.

I have two biggish loans (car + home) but these are long term and I'm managing the payments - they are also not part of the above problem. The credit card debt is a bit rough and I've got a few things I need to pay at the moment that I simply don't have the money for if I don't tap into some of my investments.

What I want to do is:
  • Take R20000 (roughly) from Investment 1 - means I actually take about R22200
  • Pay of everything listed above and get them to 'zero'
  • Close 1 of the two credit cards and make the credit limit on the other 'as low as possible'. Reason for keeping the one card is the excellent loyalty benefits I get on the card (5% of fuel purchases alone cover all my banking costs in a month)
  • Start my new marriage from scratch

This boils down to:
  • Zero short term debt
  • All my outstanding accounts settled and paid up
  • A new platform to start saving/building from

Would this be advisable or does anyone have another suggestion for managing the debt?
 
Pay the debt with the interest rate that's higher that you can earn with investing.

So more than likely your credit card debt is at 18%, so unless you can invest somewhere that gives you a better return pay the debt.

Keeping at least 1 credit card though is good for your credit rating as well as long as it's not maxed. A maxed credit card actually harms your credit rating.
 
Last edited:
We would need to know your interest rates for each debt and each investment account to advise you further.
Those values change the dynamic completely.
 
It's a no brainer, there's absolutely no point in having savings if you have debt to pay. If you need money in an emergency you can always just use your credit card again, but in the mean time use your savings to pay off your debt and reduce your interest payments every month.
 
I would personally sell the Krugerrand and close investment number 2. Instead of investing 3k a month thereafter, use that to buy a Krugerrand again.

Why, you'll incur a penalty of R2200, the Krugerrand should be not fluctuate by nearly that much between the time you sell and buy another one.
 
deweyzeph said:
It's a no brainer, there's absolutely no point in having savings if you have debt to pay.
Click to expand...

Wrong.

If someone has debt at 6% and can invest cash at 14%, it makes zero sense to pay off the debt.
 
Chevron said:
Pay the debt with the interest rate that's higher that you can earn with investing.

So more than likely your credit card debt is at 18%, so unless you can invest somewhere that gives you a better return pay the debt.

Keeping at least 1 credit card though is good for your credit rating as well as long as it's not maxed. A maxed credit card actually harms your credit rating.
Click to expand...

Yep, my thinking exactly. I'm getting good yields with the investment at the moment, but not nearly 17.5% (my credit card interest rate)

Vaughan said:
We would need to know your interest rates for each debt and each investment account to advise you further.
Those values change the dynamic completely.
Click to expand...

Savings definitely not as high as the credit interest, so 'Chevrons' post above makes perfect sense

deweyzeph said:
It's a no brainer, there's absolutely no point in having savings if you have debt to pay. If you need money in an emergency you can always just use your credit card again, but in the mean time use your savings to pay off your debt and reduce your interest payments every month.
Click to expand...

Haven't thought of it that way. Thanks

F1 Fan said:
I would personally sell the Krugerrand and close investment number 2. Instead of investing 3k a month thereafter, use that to buy a Krugerrand again.

Why, you'll incur a penalty of R2200, the Krugerrand should be not fluctuate by nearly that much between the time you sell and buy another one.
Click to expand...
I hear you...will give this some though
 
Chevron said:
Wrong.

If someone has debt at 6% and can invest cash at 14%, it makes zero sense to pay off the debt.
Click to expand...

If you can find a place to invest cash with a guaranteed return of 14% please let us know. Also I would love to know where you can borrow money at 6%. You obviously know something none of us do.
 
deweyzeph said:
It's a no brainer, there's absolutely no point in having savings if you have debt to pay. If you need money in an emergency you can always just use your credit card again, but in the mean time use your savings to pay off your debt and reduce your interest payments every month.
Click to expand...

Untrue as he will lose over 10% of his money immediately when drawing the savings. If you can pay off R3000 a month from your salary rather than invest it that may make more sense.
Sell the kruger rand, withdraw the penalty free money and pay off as much as you can. Then pay the remainder off monthly.
 
techedemic said:
Hi all,

Plea: Please don't bash my financial decisions up to this point. I know some of the things I did wrong, especially the amount of credit card debt I currently have. This came through unforeseen spending while planning a wedding and honeymoon. I'm looking for suggestions and if you're going to bash me about everything I did wrong in the past, please rather don't post... I know where I made the mistakes, I won't do it again...

I'm in the following posistion:
Currently Owing
  1. Credit Card 1 - -R15,000
  2. Credit Card 2 - -R3000
  3. TV License - -R265
  4. Municipal Account - -759.05
  5. Car service (next 2 weeks)- -3000.00
Funds Available
  • Fixed investment 1 - R31,000 (early withdrawal penalty of R2200, 3 years to go)
  • Fixed investment 2 - R3,500 (no withdrawal penalty)
  • 1 x 1 Oz Kruger Rand - R14,500 (sentimental value)

These are young investments and I contribute almost R3000 to above investments every month.

I have two biggish loans (car + home) but these are long term and I'm managing the payments - they are also not part of the above problem. The credit card debt is a bit rough and I've got a few things I need to pay at the moment that I simply don't have the money for if I don't tap into some of my investments.

What I want to do is:
  • Take R20000 (roughly) from Investment 1 - means I actually take about R22200
  • Pay of everything listed above and get them to 'zero'
  • Close 1 of the two credit cards and make the credit limit on the other 'as low as possible'. Reason for keeping the one card is the excellent loyalty benefits I get on the card (5% of fuel purchases alone cover all my banking costs in a month)
  • Start my new marriage from scratch

This boils down to:
  • Zero short term debt
  • All my outstanding accounts settled and paid up
  • A new platform to start saving/building from

Would this be advisable or does anyone have another suggestion for managing the debt?
Click to expand...

I would guess in total 3 months down the line that -R15K CC will cost you around R2100 in interest and all the rest.
I say this because I recently paid off my Virgin Money cc, my monthly bill has gone from about R780 per month to R19pm.
 
AstroTurf said:
I would guess in total 3 months down the line that -R15K CC will cost you around R2100 in interest and all the rest.
I say this because I recently paid off my Virgin Money cc, my monthly bill has gone from about R780 per month to R19pm.
Click to expand...

I currently pay 2 CC's which is just stupid to my mind. The one card is a Discovery CC, the other is from ABSA....although both offer excellent 'loyalty programmes' you don't really get the benefit if you don't commit to using only that one card to making all your purchases.

The more I look at this, the more it just becomes a no-brainer to pay off both the cards and get it over with. Thanks for everyone's feedback...
 
techedemic said:
I currently pay 2 CC's which is just stupid to my mind. The one card is a Discovery CC, the other is from ABSA....although both offer excellent 'loyalty programmes' you don't really get the benefit if you don't commit to using only that one card to making all your purchases.

The more I look at this, the more it just becomes a no-brainer to pay off both the cards and get it over with. Thanks for everyone's feedback...
Click to expand...

Yea, I looked at all that "loyalty" stuff before going for a virgin card.
Decided simplicity and price are my prerogatives, still, as i said, maxed out the thing was costing me around R800pm.

Better then my other stupidest brainfart idea ever (RCS/Game card).
 
deweyzeph said:
If you can find a place to invest cash with a guaranteed return of 14% please let us know. Also I would love to know where you can borrow money at 6%. You obviously know something none of us do.
Click to expand...

My bond is at 8% and my Satrix Indi fund is hovering in the 20% region. So it is possible for savings to out perform debt
 
heartbroken said:
My bond is at 8% and my Satrix Indi fund is hovering in the 20% region. So it is possible for savings to out perform debt
Click to expand...

20% growth on capital is not the same as 20% passive income from that same capital. You're playing with fire if you start offsetting an expense like debt interest with an annualised capital growth rate. Capital growth is great, but until you actually liquidate your capital it's completely unrealised and not doing anything for you. You're effectively trying to offset a very real expense with a completely theoretical unrealised capital gain which may or may not be realised when you one day liquidate your investment.
 
techedemic said:
I currently pay 2 CC's which is just stupid to my mind. The one card is a Discovery CC, the other is from ABSA....although both offer excellent 'loyalty programmes' you don't really get the benefit if you don't commit to using only that one card to making all your purchases.

The more I look at this, the more it just becomes a no-brainer to pay off both the cards and get it over with. Thanks for everyone's feedback...
Click to expand...

If I was you I would sell the Krugerrand.
You should at least get R15500 for it.
I would cash out Fixed Investment 2(R3500).
And I would pay off the two cards.
I would close one card and keep one card for emergencies.
 
Last edited:
^^^ What he said. Zero the credit cards. Cancel one. Car service, TV license, municipal account is not debt, it is monthly expenses.
 
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