Living month to month because of huge debt: sell house to get back to 0?

adebt

de_g. wrote: »

Just reading back on the thread...

You're not really actually asking for advice, you're looking for vindication that the decision you have made is the right one, I assume so you can direct them towards it to back up your own position. Your way may have its merits, but the caution from most on here seems to be that it's probably not the best option.

My parents have already made the decision to do this, I'm looking for a compelling reason for them to not do it. So far nobody has presented any reason why this idea will not work. I think the idea is a good one and I've been through all the scenarios with them (worst case, likely, best case) and they are happier with every potential outcome than they are continuing as they are now.

Personally I think that an ideal situation would be what people here have suggested: remain where they are and continue paying off their debt because the house gives them some degree of security and will be completely theirs in a decade or so, unfortunately the human aspect is what matters. They are not happy, they would not be able to continue as they are for the next 10 years.

My parents want to do this, I have offered to support them as best I can and said that I will try and find out if there is any angle we're missing. If I were to never speak to them again they would sell the house, I'm not convincing them to do anything...

The considerations (in order of importance) are as follows:

1. Happiness (most important)
2. Security (important)
3. Money (only important because of how it affects security and happiness).

Happiness is the #1 priority, every problem presented by people here has been regarding the money aspect: what if the house value rises substantially in the next 10 years? They will have missed out on potentially £50,000.

This doesn't matter. What matters is:

1. They have somewhere to live
2. They do not spend 100% of their income every month (able to build savings)
3. They have minimal stress
4. My brother can go to university

10 years of happiness with £100,000 in the bank is better than 10 years of unhappiness and £180,000 net worth.

Tuesday_Tenor

adebt wrote: »

My parents have already made the decision to do this, I'm looking for a compelling reason for them to not do it. So far nobody has presented any reason why this idea will not work.

I don't think there are COMPELLING reasons not to do it.

My concerns would be whether they are just exchanging one set of stresses for another.

You and they may or may not continue to be co-tenants in the longer-term future, for all sorts of reasons: for example you may change jobs and move away. If they continue to pay £900/month for that same rent then that would affect the savings plan.

As renting tenants they might find they have to move every few years. Which can be a major stress. They might never feel truly settled again, having once been home-owners. They may not find suitable properties to rent that are convenient for work. Increased travelling time for work may not be welcome as your parents get older. If still all wanting to live together, they might not find a property to rent whose location suits themselves and the (by then) adult children. Or once the children are no longer dependent, the parents might downsize their rental property, but then there might be no room for children to come and stay.

As I say, no compelling reason; it sounds like the current plan is really what they want. Just be aware of the stresses that can come with only having temporary accommodation. It may not feel like a stress to you at your age, but it might to them.

Good luck with the plan; I hope it works out.

dizzyrascal

This doesn't matter. What matters is:

1. They have somewhere to live
2. They do not spend 100% of their income every month (able to build savings)
3. They have minimal stress
4. My brother can go to university

10 years of happiness with £100,000 in the bank is better than 10 years of unhappiness and £180,000 net worth.

Your brother CAN go to university!! I don't see any reason why he can't.

Your parents may well end up in debt again.

They will have no security and may never get back on the home ownership ladder. This is something that we tend to crave more as we get older and it becomes of paramount importance when you get nearer to retirement.

I really think they would be better off on a DMP at this point. If only to see if they really can save some money.

Money does not buy happiness but the human mind is capable of convincing itself of anything, especially when stressed. I think that they are just changing one set of problems for a whole new set.

DS4215

Several people have asked you to post an SOA for your parents and one is yet to materialize. The chances are that people could look through it and find ways to save a chunk of money from the bills. It might not be a lot, but it could be hundreds per month.

If they could continue to live in their house, repay their debts *and* have some spare money left over at the end of the month would that make a difference to their decision? At the moment it seems like the decision is made without taking everything into account. If they don't want their SOA posted on here, go to StepChange and fill in the debt remedy for their situation and see what all of the options are.

musicabc

adebt wrote: »

This is not a plan to make more money or to get rich, it's a plan to resolve the financial problems my parents have and reduce the stress they're under. The goal is not to have the most money as possible in 10 years, it's to be financially secure and be happy.

If they can have £100,000 in 10 years which has been saved over the last 10 years with no stress they would choose that in a heartbeat over £160,000 in 10 years with 10 years of stress. As pennies said, life is too short... they are currently miserable and I don't think they could last another 10 years like this...

I think you have read things into my post. My post was not about making money in 10-15 years it was about being a homwowner in 10-15 years. Sorry if my point was misunderstood. I had understood that part of the plan was also to save to be able to buy a property in 10-15 years. I was just trying to check whether it had been taken into account that although they may save for 10-15 years with changes in property prices they may not be in a position to buy an equivalent property to the one they are currently in. If that was not part of the plan then I misread.

I see the decision has been made so the point is moot anyway.

gardenlady_2

I actually woke up in the middle of the night thinking of this! Your parents have finished an IVA, have remortgaged their house and still have £50k of debt. They pay £1000 per month to service this £50k debt and have been paying this for the last 6 years and will do so for the next 10 years. So £12k per year for 16 years? They are not on a DMP on that sort of interest rate. they really must contact CCCS or Paylan

You say they will save this £1000 a month when they no longer have to use it to service the debt. So they still wont have this money to spend, they will be using it to save for something they already have- a house. At the moment, paying £500 a month on their mortgage is effectively paying their housing costs and saving at the same time.

To me it seems that it is the emotional side of the debt that is getting to them most. I am assuming that your childhood was made difficult by living with parents who are in debt? You may be now trying to 'save' your parents by becoming the parent. This is no good for you in the long term, and I mean in an emotional rather than financial sense. Similarly for them, they need some emotional support around their debt. This forum is brilliant for that, but I would suggest that some councelling might be a good way to go. At the moment all of you want to get rid of the debt at any cost because you cannot cope with the emotional side of it. In a way, you can't separate financial and emotional wellbeing. If you read threads on here many people are out of their minds with stress and anxiety because of their finances. Most people dread most of all losing their home because of debt. It is the support people get in managing their debt is what helps them to ease the anxiety and allow them to move forward. I would say your parents need to find the support to manage the debt both emotionally and financially.

dizzyrascal

I totally agree with GardenLady.
I think that your parents ought to seek some sort of personal counselling to help them.

The OP might be thinking that this is the way out but I honestly think that the savings targets you describe are totally unrealistic. This is not because they won't have the money, it's because they will spend what they earn and more.
When people have had many years of poverty (for whatever reason) they tend to have a list of things they will spend the money on once they have it. This could be holidays, a new car, a big Christmas or just the freedom to buy what you want, when you want it.
And the real problem with having extra money, that should go in a savings plan is that you start to increase your standard of living. You get sky tv/music or dancing lessons. You can afford a new car, so you get one. You start to think about getting better holidays and more often. It's called hope and it's what keeps us going.
I think you would need to be very disciplined indeed to keep living very frugally when you don't have to.
I think the OP's parents will be paying tons of interest and that can be dealt with. Then maybe they could do some snowballing.
There are other alternatives to the route that you have settled on.

wonabeedebtfree

I very rarely post but read and learn from this site. People here are giving you good advice. Your parents need to read every post and digest what has been said.
Please dont jump in to sell the house. They have paid into it the last few years and that will be wasted money. Renting is definately wasted money.
Selling and moving into a rented accomodation is not a good idea. After 10 years staying in their home your parents will be free from debt and have a good retirement. This is a big step moving into your rented home.

What happens if you fall out or you walk out? Will they be able to pay the rent? What if you want your own place or you marry and have a family? Maybe the other half might not like the inlaws living with them? This is a very short term fix.

If you want to help why dont you move back in and help reduce the bills? They will not be struggling as much and both you and them will save money this way. The Credit cards and loans will be managable and you can also save as well.

This quick fix and they will be long time regetting the selling of their home.
They will not be able to get a mortgage when they are in their late 50's and more than likely if they are offered one they will have a very sort prepayment time and the rates will be higher. My SIL did this and now she has a mortgage at 1600 per month over 10years and is struggling. She is worse off.
Give this a good bit of thought. There are savings to be made and of you put up a statement of affairs some people might be able to help to make things more managable.
You have jumped in with the 5bed house but dont forget rents do go up and eventually it will cost more than their pensions( could be 80% of their income in 10 or so years time).

*The house is theirs and they can manage if they listen to the peoples advice here.*
We are all here for your parents and want to help but jumping in like this is not a good idea.

LannieDuck

A couple of suggestions:

* Have your parents already got F&F arrangements with their creditors?
* Do your parents have a spare room in their house that they could rent out to a lodger?
* Given you have 5 bedrooms, could your parents move in with you and rent out their house for a period of time (if you wouldn't kill each other in the process...)? The rental payments could all go on the debt and would make a massive dent in it without selling the house.
* Could they and you have a mass clear out and ebay/carboot a load of stuff to pay off one of their bills? (If you can get one or two of them paid off, the reduced interest payments will make the others much easier...)

I'd also be interested in seeing a SOA before I comment on whether selling their house is the most sensible approach.

adebt

DS4215 wrote: »

Several people have asked you to post an SOA for your parents and one is yet to materialize. The chances are that people could look through it and find ways to save a chunk of money from the bills. It might not be a lot, but it could be hundreds per month.

If they could continue to live in their house, repay their debts *and* have some spare money left over at the end of the month would that make a difference to their decision?

I'm not sure. They don't have any attachment to the house (my mother specifically does not like it) so it could be that they want to move regardless of the financial side and are only mentioning the financial side to me.

I don't have access to their debt documents right now, as soon as I do I will be posting a SOA.

DS4215 wrote: »

At the moment it seems like the decision is made without taking everything into account. If they don't want their SOA posted on here, go to StepChange and fill in the debt remedy for their situation and see what all of the options are.

I went through that (using estimates) and it suggested that they enter a DMP.

musicabc wrote: »

I think you have read things into my post. My post was not about making money in 10-15 years it was about being a homwowner in 10-15 years. Sorry if my point was misunderstood. I had understood that part of the plan was also to save to be able to buy a property in 10-15 years. I was just trying to check whether it had been taken into account that although they may save for 10-15 years with changes in property prices they may not be in a position to buy an equivalent property to the one they are currently in. If that was not part of the plan then I misread.

The pension that my mother has is a lump sum of around £80,000 if she retires at 60 (I believe I mentioned this previously). That combined with the potential savings they can make (even if they only save £500 per month) will allow them to purchase a property for retirement.

gardenlady wrote: »

You say they will save this £1000 a month when they no longer have to use it to service the debt. So they still wont have this money to spend, they will be using it to save for something they already have- a house. At the moment, paying £500 a month on their mortgage is effectively paying their housing costs and saving at the same time.

Their debts are currently costing around £2,000 per month. They take home just about £3,000 per month after tax. They currently live on, after debts (which includes mortgage) £1,000 per month. If they have 0 debt they will have £3,000 to spend per month.

£1000 for rent and bills
£500 for food etc
£500 for miscellaneous costs such as clothes, school trips, short term savings (eg: £100 per month for a holiday)
£1000 long term savings

That seems reasonable to me, based on my own living costs and analysis of their current living costs. Am I missing something?

gardenlady wrote: »

To me it seems that it is the emotional side of the debt that is getting to them most. I am assuming that your childhood was made difficult by living with parents who are in debt?

My childhood wasn't difficult, I was never able to have my own bedroom because their house is very small but I always earned my own money and didn't rely on them for anything. The only way my childhood could have been better would be if they had a bigger house, that could probably be blamed on the debt if you want to.

gardenlady wrote: »

You may be now trying to 'save' your parents by becoming the parent. This is no good for you in the long term, and I mean in an emotional rather than financial sense. Similarly for them, they need some emotional support around their debt. This forum is brilliant for that, but I would suggest that some councelling might be a good way to go. At the moment all of you want to get rid of the debt at any cost because you cannot cope with the emotional side of it. In a way, you can't separate financial and emotional wellbeing. If you read threads on here many people are out of their minds with stress and anxiety because of their finances. Most people dread most of all losing their home because of debt. It is the support people get in managing their debt is what helps them to ease the anxiety and allow them to move forward. I would say your parents need to find the support to manage the debt both emotionally and financially.

People are stressed because they have no control, they see no end to their problems and because they feel that they don't have any freedom.

The proposed solution (selling the house, paying off all the debt, renting short term while saving for long term) will resolve all of those problems for my parents.

They will have money, which will mean they have control over where they can live (they are happy with renting). They will have no problems because they will have no debt. They will have enough money that they will be able to live in a nice rented house, if that house has a bad landlord they will have enough money to move, they won't be living month to month. They will have freedom because they will have money.

For me personally this is relatively insignificant, I left home years ago and whether they have a house they own or a house they rent doesn't matter. I don't feel like their problems are my own, or that I have any family obligation to help them.

They have a problem that can be resolved, they are going to sell their house no matter what I say unless I can prove that it is a very bad idea (which I can't). I have offered to help them in the short term (they will live with me while they sell their house, I will help them sell the house) and then once the house is sold I will become independent again, they will become independent.

I am not committing to anything long term, for the next 6 months - 1 year (however long the house takes to sell, their neighbours house took a couple of months) they will live with me, then after that they will be independent... no debt, employment, money, housing.

dizzyrascal wrote: »

I think you would need to be very disciplined indeed to keep living very frugally when you don't have to.

The problem you're presenting makes complete sense and I completely agree. If someone goes from living on the edge with £1000 per month, when they have £3000 per month they're going to want to live like they're not poor any more.

However that problem is going to happen now or in 10 years. They are currently struggling but understand that they will need to save money if they sell the house, what will happen if they have to struggle for another 10 years? Then how will they feel?

My mothers pension is (if she retires in 10 years, aged 60) £80,000 upfront and £20,000 per year. Even if she spent every single penny she earns for the next 10 years she would be in a reasonable position at retirement, this isn't all or nothing.

I remember reading advice from Martin, he said that a good way to save money is once you've finished paying off a debt is to continue paying it but into your own account. The change to your expenditure won't be noticed but you will be building up healthy savings, why can't that principle be applied here?

The current situation: £500 per month mortgage, £1500 per month other debts, £1000 per month living costs / bills.

If we assume that they sell the house and only save £500 per month (the mortgage amount) for the next 10 years, that would leave them with £2500 per month to spend on a place to live, living costs... that's more than enough. Even if they were to decide to start taking holidays again it would not break the bank.

£500 per month for the next 10 years is £60,000, assuming the interest rates they get on savings are in line with inflation and then add the £80,000 pension lump sum... that's more than enough to purchase a house for retirement in 10 years. This would be on top of a £20,000 year pension + my fathers income (for the 5 - 10 years before he retires)...

The only way they could come out of this in a bad position is if my mother lost her job and pension.

wonabeedebtfree wrote: »

Please dont jump in to sell the house. They have paid into it the last few years and that will be wasted money. Renting is definately wasted money.

That's a terrible myth, renting is not wasted money.

wonabeedebtfree wrote: »

What happens if you fall out or you walk out? Will they be able to pay the rent? What if you want your own place or you marry and have a family? Maybe the other half might not like the inlaws living with them? This is a very short term fix.

I may have misexplained the current plan. They will be living with me while their house is sold, once their house is sold we will be going our separate ways, this will be at most 1 year.

wonabeedebtfree wrote: »

If you want to help why dont you move back in and help reduce the bills? They will not be struggling as much and both you and them will save money this way. The Credit cards and loans will be managable and you can also save as well.

They don't have room in the house for me. I didn't have my own bedroom growing up, I'm not going to return (as an adult) to sharing a bedroom with my sister...

wonabeedebtfree wrote: »

They will not be able to get a mortgage when they are in their late 50's and more than likely if they are offered one they will have a very sort prepayment time and the rates will be higher. My SIL did this and now she has a mortgage at 1600 per month over 10years and is struggling. She is worse off.

As explained previously my mother has a good pension that will provide a lump sum that combined with the next 10 years of savings will provide enough capital to purchase a house outright.

LannieDuck wrote: »

* Have your parents already got F&F arrangements with their creditors?

Yes, they have contacted all their lenders and been given full and final settlement figures, that is what they're paying towards.

LannieDuck wrote: »

* Do your parents have a spare room in their house that they could rent out to a lodger?

No, their house is too small already with no spare rooms (which is part of why they are happy to be rid of it).

LannieDuck wrote: »

* Given you have 5 bedrooms, could your parents move in with you and rent out their house for a period of time (if you wouldn't kill each other in the process...)? The rental payments could all go on the debt and would make a massive dent in it without selling the house.

The repairs needed to make the house rentable would cost too much for them. The house I have rented is where they are going to live for the next 6 months - 1 year while we sell their house, however they will not be living with me long term. I don't intend to remain in their town for more than 1 year, I'm moving back to help them out but will be leaving once their situation is resolved.[/quote]

LannieDuck wrote: »

* Could they and you have a mass clear out and ebay/carboot a load of stuff to pay off one of their bills? (If you can get one or two of them paid off, the reduced interest payments will make the others much easier...)

They don't own very much stuff, the majority of it is very old (no money to buy new stuff for the last 6 years) but I will suggest they look around and see if this is a viable idea. Thanks!

LannieDuck wrote: »

I'd also be interested in seeing a SOA before I comment on whether selling their house is the most sensible approach.

Trying to get this information asap!