Sell to pay off debt and rent?

lesleyp1989

In a situation where house is worth £125k and have £55k equity so mortgage only 425.00 per month. I am living on my own following divorce and racked up £15k of credit card debt to get my son out of a pickle. Now in a position where repayment of credit cards is higher than mortgage each month and basically a complete struggle but managing just. Always end up using the cards to their capacity just to pay bills
I would like to sell and clear the debt, rent for 6 months to a year and then look and buying again but my credit rating is not good due to maximum use of credit...how long would this stay bad once the debt was totally cleared and is it likely I would be considered for a mortgage again? Would like to think there is a light at the end of the tunnel

jjlandlord

I think you should first see a mortgage advisor to discuss your situation and see if you could release equity from your house by increasing your mortgage.
Even if releasing 15k the LTV would still be quite good.

You'd then use the money to pay off the credit card debt.
The advantage to you would be that the interest would be drastically reduced, and the monthly payment perhaps then manageable.

Thrugelmir

lesleyp1989 wrote: »

Would like to think there is a light at the end of the tunnel

You need to enter the tunnel first. Take a step at the time. Deal with your problems first. The future is what you make it.

Pixie5740

How much would your rent be?

I don't see this being worthwhile if you're only planning on renting for 6 months. Firstly you'll have costs associated with selling (solicitor, estate agents, etc) then you'll have moving costs and you'll have to pay letting agency fees (assuming you're not in Scotland).

Then when you come to buy you'll have more solicitor fees, possibly stamp duty as well and yet more moving costs.

It seems like a massive headache that will probably cost you more money. Going over to the Debt Free Wannabe board and post a statement of affairs to get suggestions on how to reduce your expenditure and increase your income to get your debts paid off quicker. You say that you're in debt because you helped out your son, is he in a position to help pay off these debts?

lesleyp1989

I tried that but got turned down, applied to release £15k for debt consolidation and the crazy thing is it would have only added £50 per month to the mortgage but got rejected

Pixie5740

jjlandlord wrote: »

I think you should first see a mortgage advisor to discuss your situation and see if you could release equity from your house by increasing your mortgage.
Even if releasing 15k the LTV would still be quite good.

You'd then use the money to pay off the credit card debt.
The advantage to you would be that the interest would be drastically reduced, and the monthly payment perhaps then manageable.

Turning unsecured debt into secured debt isn't usually recommended. Also whilst the APR on the mortgage is probably lower than the credit card APR, you're paying the debt for longer so end up paying even more interest.

lesleyp1989

Thrugelmir wrote: »

You need to enter the tunnel first. Take a step at the time. Deal with your problems first. The future is what you make it.

I'm in the tunnel and I don't really see a way to deal with the issues, this is a last resort having explored all other possibilities so not an idea to be taken lightly... rather than spend the next 5 years struggling to live I figured this may be an option ?

jjlandlord

Pixie5740 wrote: »

Turning unsecured debt into secured debt isn't usually recommended. Also whilst the APR on the mortgage is probably lower than the credit card APR, you're paying the debt for longer so end up paying even more interest.

You're paying the debt for longer if you want too.
Since the interest rate is much lower, for the same monthly payments you will pay it off sooner and more cheaply.

To me, that certainly seems a cheaper option than moving out and renting.

lesleyp1989 wrote: »

I tried that but got turned down, applied to release £15k for debt consolidation and the crazy thing is it would have only added £50 per month to the mortgage but got rejected

Sorry to hear that. That'd would have been ideal, IMHO.

Selling and renting may then be the only way to clean your slate.

borkid

Could you take in a lodger? It would take a while to clear the debt but it would be another income source.

Kynthia

Selling and renting is a last resort as you'll lose your asset, a secure roof over your head, incur thousands in additional costs, and possibly be unable to buy again.


You said you've looked into remortgaging but were turned down. Was that with your current lender or did you speak to an independent broker with copies of your three credit reports (don't sign up for the expensive memberships)? I would definitely do this if you haven't already, and find someone experienced in dealing with those who have poor credit histories. Otherwise have you looked at moving the credit card debts to cards with 0% on balance transfers, or spoken to a government debt advisory service?

lesleyp1989

Kynthia wrote: »

Selling and renting is a last resort as you'll lose your asset, a secure roof over your head, incur thousands in additional costs, and possibly be unable to buy again.


You said you've looked into remortgaging but were turned down. Was that with your current lender or did you speak to an independent broker with copies of your three credit reports (don't sign up for the expensive memberships)? I would definitely do this if you haven't already, and find someone experienced in dealing with those who have poor credit histories. Otherwise have you looked at moving the credit card debts to cards with 0% on balance transfers, or spoken to a government debt advisory service?

That was with my current lender, my bank, I am not able to get any additional lending or transfer right now as credit score is only 475, I'll maybe try an independant mortgage advisor, thanks