Selling to clear debt - what are the options?

[thezappa]

So long and short of it is in our house we have a large amount of debt; to parents for buying and doing up the house and to CC companies (c£12k). For now it doesn't matter how the CC debt came about as we can address that further down the line plus that is not the purpose for this post.
The question is clearing the debt, how to do it.
The options as I see them are:

Get an unsecured loan for the CC debt and pay it off with lower interest over say 5 years. That would take care of the CC which is the primary concern but won't do anything to the larger family debt which are both acutely aware of.

Remortgage and pay off the CC with that - again doesn't take care of the larger debt.

Get an equity loan. We bought for 230, it was a shell at that time and we've done a lot to it (installing heating, plumbing, electrics, a kitchen, moved the bathroom and so on and so on) estimations are that its worth about £330 now. the neighbours moved in 2 years ago and paid £290 and that was for a 'ready to live in house' so £330 we feel is a sensible figure.
We currently have about £200 left on the mortgage, we put in 10% so we have £100k in equity.

The last option would be to sell the house. It would be a wrench as we both really like it but if the figures are accurate [enough] we would cover all of the debt to parents and CC and have money left for a deposit on another house. If we did this we thought about buying again straight away (not keen on this given the March 29th thing) or renting for 6 months with a large amount in the bank for a deposit ready to look again.
Only thing with that is there isn't too much around within or budget but again that may change.

At the moment my feeling is either take out an equity loan which enables us to clear the CC debt and get on with our lives or sell and clear all of the debt.
Pros for the loan: clear the CC debt and keep the house.
Cons: still have large parental debt.

Pros for selling: clearing every bit of debt we have and starting over and have a deposit for another house.
Cons: lose the house.

Although selling would mean losing the house it's for the greater good and would allow us to start again with a clean slate.

So what am I missing, anything? What are your thoughts?

Apologies for the rather long post but its a tricky one and I want all the information and another more objective view of things.

 

[Mercenary Keyboard Warrior]

I dont see the point in "starting again" You immediately go back to the point of having debt. But you will have ****** a load of money up against the wall in getting there.

Your basic thoughs are right, but with one assumption, that the house is actually affordable for you?

Assuming it is. Then get rid of the highest debt first. So if you cannot see a way to quickly clear the CCs then yes take a loan to sort that. If you can do this via remortgage then thats a sound plan. If you would be willing to lose the house to sort the debt then adding it to the mortgage is seemingly a good compromise.

The parents debt. Whats the real issue with this, do they need it, or is it a guilt thing for you? If they need it, same as above look to get it via remortgage, if its a guilt thing work out a repayment plan, and start paying them back.

I think the key here is to understand the affordability. Are you on the edge, did you spend more than you should, if the debt was cleared into the mortgage would you be able to afford that and still live comfortably.

Also forget the 29th March thing, if it does end up being an issue you already missed the boat. Your highly highly unlikely to be sold up and out with cash in the bank before then.

 

[Hedge]

12k isn't that much compared to many people.

Just apply for a loan and clear the lot with that.

 

[Quartz]

Simply moving house will cost you thousands. So remortgage, job done.

 

[RoyMi6]

I was under the impression that parents need to gift you the money to put towards a deposit on the house? It can't be a loan. So keep that in mind when talking with banks as I don't think you will be able to remortgage to pay back a gift from your parents.

You need to be careful with putting loans on your mortgage. The length of time you pay them off over means that while the monthly payments are less you pay more for the privilege.

Without knowing the exact terms of the mortgage, but assuming £200K with 15 years left at 2%, here's some quick numbers:

Get a loan to pay off £12K
M&S Bank Personal Loan @ 2.90% for 5 years
£215.09 paid monthly
Total payment: £12,905.40
"Cost": £905.40 but paid off in 5 years


Add to mortgage
Current mortgage:
Assuming 2% at 15 years with £200K left
£1287 paid monthly
Total payment: £231,689

Add to mortgage:
Assuming 2% at 15 years with £212K left
£1364 paid monthly (£77 extra paid monthly)
Total payment: £245,590
"Cost": £1901 extra paid over 15 years

So...

Loan: £215 per month. Total extra paid in interest: £905.40
Mortgage: £77 per month. Total extra paid in interest: £1901

Those numbers obviously change if you had a longer terms or higher interest rate.

 

[thezappa]

I dont see the point in "starting again" You immediately go back to the point of having debt. But you will have ****** a load of money up against the wall in getting there.

Your basic thoughs are right, but with one assumption, that the house is actually affordable for you?

Assuming it is. Then get rid of the highest debt first. So if you cannot see a way to quickly clear the CCs then yes take a loan to sort that. If you can do this via remortgage then thats a sound plan. If you would be willing to lose the house to sort the debt then adding it to the mortgage is seemingly a good compromise.

The parents debt. Whats the real issue with this, do they need it, or is it a guilt thing for you? If they need it, same as above look to get it via remortgage, if its a guilt thing work out a repayment plan, and start paying them back.

I think the key here is to understand the affordability. Are you on the edge, did you spend more than you should, if the debt was cleared into the mortgage would you be able to afford that and still live comfortably.

Also forget the 29th March thing, if it does end up being an issue you already missed the boat. Your highly highly unlikely to be sold up and out with cash in the bank before then.

I see what you mean.
The idea of ‘starting again’ was to pay the money back to our parents and CC and begin with a ‘clean slate’ with just payments to the mortgage provider going out.
Whilst they’re not in urgent need of it it is as you say a guilt feeling that compels us to want to repay it.
The affordability side of things is a fair point. We don’t struggle, the issue we have is that we can’t do anything with our lives as it is. We want to start a family but feel trapped by the money we owe.
We can’t save any significant amount of money, we can’t go on holidays or make improvements to the house we’re just existing in the house and paying what we have to.
We’re not on the edge we’re just not far enough away from it to feel as comfortable as we would like.

Perhaps speaking to the bank and asking them for some numbers (adding to the mortgage and what that would do to the costs) and see what they say.

 

[Syla5]

Balance transfer the credit card debt to interest free credit card debt and use self control to not spend on old credit cards or close them.

Interest free debt is better then interest debt.

Also you need to provide some clarity around the debt to family...how much is it, and how urgently or how much pressure are they applying to get it back?

 

[thezappa]

Balance transfer the credit card debt to interest free credit card debt and use self control to not spend on old credit cards or close them.

Interest free debt is better then interest debt.

Also you need to provide some clarity around the debt to family...how much is it, and how urgently or how much pressure are they applying to get it back?

Absolutely, I agree. Continuously transferring may be a better way to manage it for the time being to avoid interest charges.
A bank loan whilst preferable, a credit score of ‘fair’ reduces lender options.
The parental debt totals about £60k, we’re not being chased for it, it’s just the desire to pay it back, it’s internal pressure.

 

[Syla5]

Absolutely, I agree. Continuously transferring may be a better way to manage it for the time being to avoid interest charges.
A bank loan whilst preferable, a credit score of ‘fair’ reduces lender options.
The parental debt totals about £60k, we’re not being chased for it, it’s just the desire to pay it back, it’s internal pressure.

Don't sell your house it will leave you far worse off.

Manage the debt either down on the credit card, clear that.

When you next come to re-mortgage your property then consider borrowing the extra to pay back parents. If you are not being pressured then don't apply pressure that will lead you to make the worst possible decision.

 

[Randomface74]

Facts as I understand them are:
- 200k remaining mortgage (100k home equity)
- 12k credit card debt
- 60k owed to parents (not being chased for it)
- You don't want to move

OK, so here's what I'd do.
Step 1 - Clear high interest debt.

Then get rid of the highest debt first. So if you cannot see a way to quickly clear the CCs then yes take a loan to sort that. If you can do this via remortgage then thats a sound plan. If you would be willing to lose the house to sort the debt then adding it to the mortgage is seemingly a good compromise.

Step 2 - Family meeting!
Agree a monthly repayment amount with your parents. If you can agree, sorted. If you can't agree, remortgage or sell.
Don't delay starting a family because of this debt.
Be transparent with your parents so they know you're doing your best and feel guilty about owing them so much.

 

[Mercenary Keyboard Warrior]

Yeah agree with Syla here.
1) get the CC sorted. Interest free transfer card, if you can get one is a good start. Otherwise prioritise it, make it your mission to clear it. sell stuff you dont need etc

2) save the family issue for next. If you can clear the card then by default you will be able to start paying the family back.

I would also add, do you budget, it can really help, Just listing everything you pay for, working out a forecast over the year etc can help you focus.
Its amazing when you start writing it out you can go wow didnt realise that. Its far easier to target what you know rather than what you feel.

Personally I made it a goal to do certain things. I then gained enjoyment from doing things to get to that point. I felt like I was making progress and the goal at the end was just so much sweeter.
I find and plenty do there can be enjoyment from saving.

Sometimes things look unachievable in total so break them down. Set a plan and goals, so maybe its to wipe £1k off the CC every quarter. Can you succeed in Q2.
Only you know your motivations so only you know how to motivate yourself.
Try to look for the positives, you have a house you like, so now your trying to improve your situation, to make that yours completely (ie no debt) and position yourself to have a family.

Edit just in regards point 1. I still would look to refinance it if you cant get a zero % card. I just mean that amount, ring fence it mentally and wherever you end up with it aim to clear it, then move onto the family debt.

 

[Dave M]

Remortgaging will be harder with the CC debt (a broker could help find a lender who'll take it on but it would still be far easier / cheaper without it)

If you take out a loan now to pay off the CC that would be great, but recent loans have an effect on your credit score and you're a big risk for building up the CC debt again so will still be looking at specialist lenders.

Best would be to pay off the CC debt from income, over the next 6-12 months, then remortgage to pay off the family loan. Assuming you meet affordability criteria for the increased mortgage.

If you can't pay off the CC in this way, I'd question if you could get the larger mortgage, but take out a small loan and apply for the remortgage in 6 months. The hit on your credit score will be less in 6 months time and the fact you haven't built up any more CC debt in the 6 months will stand you in good stead.

I'd recommend getting a free initial consultation from a mortgage broker or look for online affordability calculators (the former would be better imo), so you can gauge how likely it is you'll be accepted for the larger mortgage, based on affordability criteria (this isn't really up to individual lenders, the rules are set by the government now).

 

[Psycho Sonny]

Absolutely, I agree. Continuously transferring may be a better way to manage it for the time being to avoid interest charges.
A bank loan whilst preferable, a credit score of ‘fair’ reduces lender options.
The parental debt totals about £60k, we’re not being chased for it, it’s just the desire to pay it back, it’s internal pressure.

The money your parents "gifted" you was a gift and they had to sing a bit of paper saying so.

if that isn't the case then you cannot afford the house you are living in.

sell the house and downsize.

 

[Martynt74]

The money your parents "gifted" you was a gift and they had to sing a bit of paper saying so.

if that isn't the case then you cannot afford the house you are living in.

sell the house and downsize.

But they can afford the house. They've got £40k equity in it and are affording life month to month

 

[Mercenary Keyboard Warrior]

The money your parents "gifted" you was a gift and they had to sing a bit of paper saying so.

if that isn't the case then you cannot afford the house you are living in.

sell the house and downsize.

Rubbish, you are completely confusing ability to afford to run with the ability to save.
And thats before you get to the point of that one persons £300k house may cost half as much to run as anothers £300k house
I could afford to run a small mansion on what I earn, I don't have the cash in hand to buy one. If someone gifted me a couple of Mill I could easily afford to run it.

This is why its very frequent to have gifting.

 

[Syla5]

The money your parents "gifted" you was a gift and they had to sing a bit of paper saying so.

if that isn't the case then you cannot afford the house you are living in.

sell the house and downsize.

You seriously have no clue sometimes.

My wife an I were gifted £50k to buy our first house, not because we couldn't afford it, but because no lender would lend to us due to my wife not having enough books being self employed at the time and my own income not being enough to cover the full borrowing.

This gifted money was a mortgage extension that we agreed from the start to make the monthly payments on to pay it back.

We then continued to utilise the gifted money to buy our next house, again we could afford it, but wouldn't have got the house with being able to use it as a deposit, paying back against the gifted mortgage and our new mortgage.

We continued to pay back our mortgage and the gifted mortgage for 9 years. At which point we re-mortgaged and paid off the borrowed gift.

All the time we could afford to pay all our bills, pay off all our other debt (most tied to renovating the house), and over pay on top of both mortgages. All while continuing to enjoy a comfortable life.

By your way of thinking we should have downsized 9 years ago.... as we couldn't afford our house...which we could and do lol.

OP never said they couldn't afford their current situation, and couldn't afford to repay, they are applying their own pressure on themselves to pay back a family loan.

 

[Psycho Sonny]

But they can afford the house. They've got £40k equity in it and are affording life month to month

no they can't

they owe £80K in loans and don't have any money to go on holiday or do nice things

they can afford to live in the house so long as that £80K disappears into a black hole otherwise no they can't

We can’t save any significant amount of money, we can’t go on holidays or make improvements to the house we’re just existing in the house and paying what we have to.
We’re not on the edge we’re just not far enough away from it to feel as comfortable as we would like.

does this sound like someone who can afford to pay back £80K on top of their current spending?

You seriously have no clue sometimes.

My wife an I were gifted £50k to buy our first house, not because we couldn't afford it, but because no lender would lend to us due to my wife not having enough books being self employed at the time and my own income not being enough to cover the full borrowing.

This gifted money was a mortgage extension that we agreed from the start to make the monthly payments on to pay it back.

We then continued to utilise the gifted money to buy our next house, again we could afford it, but wouldn't have got the house with being able to use it as a deposit, paying back against the gifted mortgage and our new mortgage.

We continued to pay back our mortgage and the gifted mortgage for 9 years. At which point we re-mortgaged and paid off the borrowed gift.

All the time we could afford to pay all our bills, pay off all our other debt (most tied to renovating the house), and over pay on top of both mortgages. All while continuing to enjoy a comfortable life.

By your way of thinking we should have downsized 9 years ago.... as we couldn't afford our house...which we could and do lol.

OP never said they couldn't afford their current situation, and couldn't afford to repay, they are applying their own pressure on themselves to pay back a family loan.

you clearly haven't read his posts. he can't afford to pay back the money he owes. he has at best pennies left every month and needs to pay back £80K. which would take a lifetime i'm guessing and the parents would be long dead by then.

your own circumstances have absolutely nothing to do with his ability to pay back £80K.

 

[BongoHunter]

I would ring bank - ask them if you can remortgage for the extra 72 (should be possible if LTV has changed by the amount you suggest), then immediately clear cards and pay back the family, this gives you the clean slate you want without the cost of moving house.

Immediately cut up the credit cards as well - will stop a repeat

 

[Psycho Sonny]

I would ring bank - ask them if you can remortgage for the extra 72 (should be possible if LTV has changed by the amount you suggest), then immediately clear cards and pay back the family, this gives you the clean slate you want without the cost of moving house.

Immediately cut up the credit cards as well - will stop a repeat

doing so will increase his mortgage by circa £300 a month at minimum more likely £400 a month

"We can’t save any significant amount of money, we can’t go on holidays or make improvements to the house we’re just existing in the house and paying what we have to.
We’re not on the edge we’re just not far enough away from it to feel as comfortable as we would like."

does this sound like something that is feasible?


also the bank will ask what is this money for. when they turn around and say it's to pay back money we owe they will say no chance. try elsewhere

 

[tom_e]

doing so will increase his mortgage by circa £300 a month at minimum more likely £400 a month

"We can’t save any significant amount of money, we can’t go on holidays or make improvements to the house we’re just existing in the house and paying what we have to.
We’re not on the edge we’re just not far enough away from it to feel as comfortable as we would like."

does this sound like something that is feasible?


also the bank will ask what is this money for. when they turn around and say it's to pay back money we owe they will say no chance. try elsewhere

Minimum payments on £12k across a couple of different cards is going to be a couple of hundred a month so whichever way they go it's not like they're going to be paying out extra as such just shifting where the payments go to.