Do I sell up and downsize or use my pension?

Diver

OK here goes. I know I’m not stupid but I have been over the last 5 years. But last week I pulled my head from the sand and faced my denial.

I run my own business and over the last three years it has not been as good as I could have made it but instead of cutting my personal budget I just kept going and now I am in debt and in danger of ruining a perfectly good business that has taken me 16 years to get to here.

Because of a good credit rating I have amassed a credit card debt of £43,720.81 plus a further £8954.94 of personal loans. My company can’t afford to pay me what I need to service the loans let alone make any serious attempt at re-paying them.

Today I completed the CCCS online form and spoke to someone who was very helpful and I’m starting to see my way forward. The one question I have that I’m unable to reconcile is one that is causing me a great deal of moral turmoil.

Excluding the cc debts I have about £280,000 of equity in my home which is shared by my (very understanding) wife and the last of my children (11 years old) left living at home. I also have quite a good personal pension and as I’m 50 I can take out about £25,000 in cash. So here’s the question. Do I sell up and downsize or use my pension?

Any thought gratefully received.

whatatwit

Is there going to be any tax implications in using your pension?

Have you had a look around at house prices, in my area, smaller houses can cost almost as much as larger ones, especially once you have the associated moving costs into account.

CLAPTON

it would be a lot better if you provided more information.

a. have you addressed the spending issues that lead you into debt in the first place.

b. currently how much do you have to pay off the debts each month and how much are the minimum monthly payments

c. if you take your pension, in addition to the 25,000 cash presumably you will also have an income as well. how much would this be .

d. i would recommend you post your SOA (i.e. full details of income , spending and the debts ) so we have a complete financial picture.

going2die_rich

Me personally, I'd use the pension. House prices don't seem like they are going to level off anytime soon, and if anything continue to grow. So the pension money will in my mind do less well than property.

Have you considered leaving your pension alone and just remortgaging your house? Get the £50k equity released out of the £280k you have and that way you get the credit cards paid off on a much lower rate of interest. Obviously you'd have to be able to afford the monthly payments.

If I was in your shoes and taking a decision from what you've said, I'd use the £25k pension money to pay off half of the Credit Cards. Then remortgage the equity in the house for the remainding £25k. So you keep your nice home while your child is young as you need space with a growing teen (when they want to slam doors, blast music, etc)

I'd ensure that I had a good life insurance policy (if you are self employed I believe this can come out of the business) so that your wife and child are taken care of if the worst was to happen since you are more in debt than before. Then I'd work my socks off (without putting myself in an early grave as I am more use to my family alive than dead!) in order to make a success of the business.

In the future obviously that £50k debt is going to have effect as it may mean downsizing when you retire since you spent the lump sum pension payout, but by then your child will be off to uni so you can get the smaller house without as many of the problems as you would have now. As a lot of elderly couples tend to downsize to make things easier to maintain anyway.

Just ensure you don't fall in to the same hole again by making a proper budget to project your actual income and have your lifestyle meet that, not the other way round. Even consider giving up any luxuries to boost any overpayments you can make to your mortgage repayments. Obviously don't stop living just because of this problem, but at the same time don't think it's vanished just because you've paid it off. You have some hard work ahead of you.

Plenty of budget tips etc on here and it's a good mindset to pass on to your child too so that they never end up where you are now. As a lot of the generation coming up now don't get taught any money matters.

But well done for facing your problem rather than letting all of the equity disappearing from your home.

Hope things work out for you.

tyllwyd

Would you be able to remortgage to raise the £50000 without moving house? If you decide to downsize, you have to take into account the estate agents fees, legal fees, stamp duty, moving costs and everything else - it might end up costing you a good few thousand, which you should weigh up against the extra interest costs of borrowing the money on your mortgage.