Best way to tackle debt to prepare for home saving

tbs152

Hi all. I'm in a situation whereby myself and my partner want to save for a deposit for a home, however I have around £9k of credit card debt I'd like to tackle first.

I have a car I barely use as I now travel to work via train, so I'd be happy to sell the car. It's worth £5k conservatively. I could then use an upcoming work bonus to cover the rest of the credit card debt. However, in order to sell the car I need to clear finance on it, which costs £4k. I currently pay £140 a month for this finance, so my options are as follows:

1. Take out a loan of £4k to cover the car settlement, then use the £5k profit from the car sale to pay off the credit card debt.
   
   
2. Or: Transfer the finance to the car buyer and take ~£1k in cash from that sale to chip off the credit card debt.

Option 1 would allow me to only have a total of two secured debts (including the one that replaces the car finance) and no credit cards. Option 2 would clear one secured debt (the car finance) to leave just one secured loan, but I would still have around £5k of credit card debt.

Sorry if this is confusing, but which of these options would be 'better' in terms of a.) long term cost and b.) the effect these debts have on mortgage approval chances.

Any advice would be appreciated. Thanks!

jaydeeuk1

Option 1 easier from a buyers point of view - most people, including myself, would be put off buying a car with finance on it privately. However there is a risk you might not get £5k. Just because similar cars are listed on Autotrader (mostly Trade with SOGA protection) for £5 doesn't mean they'll sell for that.

Option 2 where the buyer pays off the finance directly and pays you the remainder, if any, is best for you as no more loans needed. Just be upfront on the advert, hiding the fact it has finance until they turn up would annoy me. As for the mortgage, will take a month or 2 before the debt is shown up as cleared anyway, so might as well try option 2 first.

You might need permission from the finance company if its on PCP to sell.

tlc678910

Could you hang on a bit and use the bonus from work to pay off the car finance then use the proceeds of the car sale to pay down the credit card?

You would then expect to have 4K on the card which if you are able to get a 0% or low interest balance transfer could be cheaper and more flexible than carrying this debt as a loan.