£5 per month to credit card or pay off at reduced amount!

easterbunny135

My son has a £4k debt and arranged with citizens advice to pay off at £5 a month (single dad). The company has written to him and offered a 60% discount of the overall debt if he pays it off. so he'd be paying £2400 instead of the £4000. He's wondering if he should get an interest free card and pay it off as it worries him. It would be a huge struggle for him to pay off but it'd be away v managing the £5 monthly.

What would you do?

cymruchris

If he has a £4k debt and he's on an arrangement to pay or something similar, and if he happens to have any other negative markers on his credit history such as late payments - it's not so likely he'd get a 0 percent card. (You could try eligibility checkers to confirm this).

In terms of making a lump sum payment like this if the account is 'frozen' may not allow a regular balance transfer anyway (depends on how the bank has set the account now that it's being managed to clear the debt). He'd most likely need a money transfer card - to move money from credit card to current account - and then pay it off - but again if the history happens to have any negative markers - the chances of getting one would be slim.

Again using the eligibility checkers on card providers websites - you might find the sub-prime cards such as Aqua and Vanquis approve a card - but the interest rates are really, really, really high. They usually offer a short promotional offer - 6 to 9 months - but after that the interest rates go crazy. I wouldn't go down that path unless I was absolutely confident I could manage to clear any balances before the high interest kicked in.

You're right that paying £2400 is far better than £4000 - and on clearing it - that's the matter closed without the need for any ongoing payments. Does he have 'stuff' around the house that he can clear out on ebay to raise the funds? It's surprising what people 'keep' that they never use, an old phone in the drawer, an old laptop in the cupboard, a pair of decent brand shoes still in their box etc - or could do without for a few months until their situation improved. It's a tough lesson. Does he currently pay for things like Netflix, Spotify or have a super-duper TV or broadband package? There may be ways to trim costs that allow him to save for a few months. Downgrade the mobile phone package - downgrade the TV or broadband - suspend the Netflix or Spotify - a few months without can help focus the mind on paying off the debt.

kimwp

Presumably if he qualified for the credit card, he'd then need to pay that off at an amount more than £5 a month?

What would I do personally? Tell him to counter-offer at £1800 and give him the money to pay it.

fatbelly

It's always an option to settle a defaulted debt at a discount. 

If £5 per month is all that is available from his regular income, then that is what he should pay them.

However he also needs a separate pot (account if you like) and start accumulating any small sum he can get.

Chris has come up with some good ideas. Buying anything you can through Topcashback/Quidco gives money back.

There are lots of ideas on the Boost your income and ebay etc boards

HSBC are offering £175 for opening a new account

Chase gives 1% cashback on all spending and 1.5% interest on savings

Brie

cymruchris said:

Does he currently pay for things like Netflix, Spotify or have a super-duper TV or broadband package? There may be ways to trim costs that allow him to save for a few months. Downgrade the mobile phone package - downgrade the TV or broadband - suspend the Netflix or Spotify - a few months without can help focus the mind on paying off the debt.

Agree with everything said - but would also add to look at the option of only having Netflix and the broadband but not watch live TV or iPlayer and then he could scrap the £20 a month TV license.