Pay off debts, or extend the house?

HurdyGurdy

We have a sizeable chunk of money available to us, via an inheritance (around £60,000)

We have five credit card debts between us. Three are with DCAs, the other two are having minimum monthly payments, or fractionally over, made - £100 each per month.

The debts with the DCAs are being paid at £125 per month, £30 per month and £50 per month.

This makes a total of £405 servicing the debts.


I want opinions as to what is the best way to proceed here.

The £60,000 is in a savings account, which is being held for us by a family member.

One of us wants to take some of the money and pay off the debts completely - even the ones with the DCAs, even though they are not accruing interest. The cumulative balance of all the debts is in the region of £12,000.

The other one of us wants to use the money to do some work on the house. The reasoning behind this is that it is an inheritance and should be used for something that would benefit the whole family and will add value to the home.

This involves knocking the existing kitchen and a large utility room into one and building a small extension to the kitchen (to "square the room off") and and making a fabulous kitchen/diner, and also refurbishing the bathroom (which is vile, quite frankly, at the moment)

A couple of "ish" quotes have been obtained (without proper builder's plans being drawn up, so they quotes are a bit fluid) and the work proposed will take up the thick end of the £60,000, meaning we will still be paying the debts.

There is no intention in the near future to sell the house, but the one of us that wants to do the work is certain that it would pay benefits in the future when we do want to sell and downsize.

Which option is the most beneficial?

matttye

I think you'd have to be crazy not to pay off the debts.

shoe*diva79

The debt is small compared to the money you have inherited. I think pay off debt so you no longer have it hanging over you.

Debtfree2018_2

Definitely pay off the debt, invest in house improvements and get yourself an emergency fund

FireWyrm

So, I take it you own your own home outright? If not, that should be your first priority. It is monumentally stupid to be paying interest on a debt you can sensibly get rid of. It is a lot like standing outside in the street and throwing money down the drain.

enthusiasticsaver

Pay off the debts first. You presumably are paying interest on it and in the long run this will be most beneficial to you. Then do a proper cost analysis of the extension as undoubtedly it will cost more than you think it will so you could end up even more in debt. Why not just do the bathroom initially? Benefits in the future when you sell the house will mean nothing if you are paying debts today. My suggestion is pay off the debts £12000, keep a £5-6k emergency fund and do the home improvements gradually rather than make some builder rich by doing them all at once.

[Deleted User]

matttye wrote: »

I think you'd have to be crazy not to pay off the debts.

Especially the ones costing interest.

tyllwyd

If you've got debts of £12K and an inheritance of £60K, then after paying them off you've got £48K left and you won't be paying out on debt repayments - could you pay off the debts and then scale down your plans so that you can do both? I would say you are looking to do a lot with your £60K, and what will you do if you get half way through and realise you have run out of money? There will be no options to borrow money to tide you over.


Also, what if the companies you owe money to become aware that you are spending capital and decide that you have broken your agreement with them and demand full payment immediately? I would say 100% that you have to sort things out first so that you can start again with a clean slate.

bargainbetty

Pay off the debt, leaving the £48k. Start with the bathroom refurbishment, which doesn't have to cost the earth to offer a lovely new look (use your budgeting skills to obtain the hardware etc at the best prices rather than going via the workmen every time) and see what you have left after that.

Clearing the debt should come first - you can put the £405 you pay towards the debt into a savings account which will top the inheritance back up again as you go along.

EMMAP

Definitely pay off the debt. Being debt-free will benefit your whole family because you won't have that constant worry, that sick feeling in the pit of your stomach. You'd still have that every time you looked at your shiny new extension...

arryc

i dont see any reason why you should not be able to do both with that amount of money , we have done a double storey side extension with addition of 2 bedrooms 2 downstairs rooms new kitchen new bathroom, with 3 rooms knocked into one very large living are ,a loft conversion the full length of the bigger house inc addition of a dormer for £45k we have decorated ourselves which saved some money .
i would say from experience 60k to do all that seems extremely steep or your taste in decor etc is very expensive ( expensive decor rarely increase the value of a property )