Selling house to pay debt

enthusiasticsaver

BA1985 wrote: »

I understand, and agree, selling the house for unsecured debt isn't the best way forward, but the idea only seems an option as it would be a fresh start, no debt, and no stress.
I will contact StepChange and complete the SOA.

Thank you

I always worry when I read a fresh start. This only works when you have addressed why you got into debt in the first place and is the main reason why debt consolidation actually makes things worse.

If you were forced into dealing with why you are in debt when the debt sits at £5k or £10k the time taken to sort this out is much less than when someone has struggled for years and years and the debt gets to £30k or in your case £45k. You look at it and the figure is daunting and you cannot imagine getting rid of it so you look for a quick option. The only quick option you have if more debt is no longer available to you is selling your house. That may clear the debt but it does not address why you are in debt to start with.

You won't get a completely fresh start and it will cost you thousands. £5k to sell and then probably another £8k to buy as you will have stamp duty unless the value of the new property is very low. That means out of the £330k you may get for your house, £271k will go to repay the debt and mortgage, £13k will go on costs and then probably another £5k on the costs of paying rent, deposit and maybe storage for furniture and perhaps moving costs.

I urge you to explore other options like sorting out your budget, maybe a DMP or restructuring existing debt (not consolidating) first.

enthusiasticsaver

Also contact your creditors. Most of them will try to be helpful. It is not in their interest to send you into bankruptcy (not an option as you have equity so do not do that). Ask them for breathing space to sort out your debts and if they can freeze interest. You must stop spending on cards as a priority.

BA1985

Thank you for your advice Enthuisaticsaver's - greatly appreciated.

And you're correct, it doesn't solve the root cause of why we got into this position. To emphasize your point further, part of the 45k debt, is actually a loan (family) which we used 2 years ago to clear 35k of debt. Of which 23k is remaining, and we have since built up a further 22k. Madness personified. The credit cards have been a way of living, as outgoings far outweighed income at points, and was used for food, and petrol etc. we have nothing to show for it as in holidays or TV's & gadgets. So that issue needs to be seriously reviewed alongside trying to get out of this mess.

DMP seems sensible, question, whilst on a DMP is our credit ratings drastically affected? I assume it would show lenders that we borrowed, unable to pay back the full amounts, and would be a large risk? I am thinking purely on a mortgage point of view, not further credit! As our mortgage is up for renewal in 2 years time.

Thanks

comeandgo

Your credit rating will be shot to pieces already, when you come to remortgage you could stay with the same company, either go on their standard rate or another or their products. Usually when you stay with same company they do not do further checks on you.

enthusiasticsaver

You may have a problem with the family loan as a DMP will not take family debt into consideration. If you have built up a further £22k in two years that is some serious overspending so that is your biggest issue. That is also one of the main reasons why selling your house would be a bad idea as if you have that money sat in a savings account can you guarantee you would have the self control not to splurge on holidays and gadgets?

Your credit ratings will already be affected even without the defaults and yes a DMP may affect your ability to get a good mortgage deal. However if you only have £22k of credit cards and £23k family debt then once you have sorted out living within your means that should not take too long to get on top of but it means sacrifices. No holidays, gadgets and entertainment, food etc within budget and not on cards.

BA1985

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 2
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 3180
Partners monthly income after tax....... 580
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 3760

Monthly Expense Details
Mortgage................................ 795.3
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 30
Council tax............................. 200
Electricity............................. 50
Gas..................................... 50
Oil..................................... 0
Water rates............................. 45
Telephone (land line)................... 0
Mobile phone............................ 150
TV Licence.............................. 12
Satellite/Cable TV...................... 70
Internet Services....................... 0
Groceries etc. ......................... 400
Clothing................................ 0
Petrol/diesel........................... 120
Road tax................................ 12.99
Car Insurance........................... 37.99
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 100
Medical (prescriptions, dentist etc).... 10
Pet insurance/vet bills................. 80
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 25
Haircuts................................ 25
Entertainment........................... 250
Holiday................................. 0
Emergency fund.......................... 0
Family Loan............................. 850
Total monthly expenses.................. 3313.28


Assets
Cash.................................... 0
House value (Gross)..................... 330000
Shares and bonds........................ 0
Car(s).................................. 1500
Other assets............................ 0
Total Assets............................ 331500


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 160000...(795.3)....2.09
Total secured & HP debts...... 160000....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Credit Card....................6500......160.......0
Credit card....................800.......40........0
Credit Card....................3200......150.......0
Catalog .......................200.......7.........0
Store Card.....................1500......70........0
Credit Card....................2000......150.......0
Credit Card....................1000......120.......0
Credit Card....................200.......10........0
Credit Card....................2000......100.......0
Total unsecured debts..........17400.....807.......-


Monthly Budget Summary
Total monthly income.................... 3,760
Expenses (including HP & secured debts). 3,313.28
Available for debt repayments........... 446.72
Monthly UNsecured debt repayments....... 807
Amount short for making debt repayments. -360.28

Personal Balance Sheet Summary
Total assets (things you own)........... 331,500
Total HP & Secured debt................. -160,000
Total Unsecured debt.................... -17,400
Net Assets.............................. 154,100

Created using the SOA calculator at [
Reproduced on Moneysavingexpert with permission, using other browser.

comeandgo

Have you missed the house and contents insurances? What pets do you have that cost so much a month?

I don’t think you have included the balance on the loan you owe to family.

Larac

I owed a similar amount if not more! and had equity in the house. I did go the DMP route which sorted out my spending habits as you really do have to live within your means and stick to budgets. My credit record was on the point of being 'trashed' so really having default markers was not going to make a difference. I kept with my mortgage provider as it was on a reasonably good deal. Most people on DMP will struggle to 'shop' around' as new providers will start digging into credit files. Five years down the line, I am glad I took that decision as another chunk of the mortgage has been paid off, default markers will drop off my file and coming to the end of my DMP. In my case I really did have to go 'cold turkey' and take the DMP route to sort out my spending issues!

enjoyyourshoes

if you really want to save and throw as much at the debt to reduce spiral then curtail following:-

Mobile phones
Satellite TV
Pet insurance / Vet
Entertainment
Childcare (if possible or is it to support paid employment?)
Can you renegotiate terms of family loan until other debts have been met/partially met
Haircuts ad presents (looks like round sum claims, can this be eradicated until you get more on an even keel?)

Prioritise your debts (APR order) duo cash flow with max you can throw at debts each month to see how long it will take to be debt free (be wary if you have 0% deals as these expire and post apr can be high)

Cut up CC cards

Also list OD as debt ad work out monthly costs as these can build up with daily/term/apr fees charges

Need to get all of you on same page and agree priorities and save as much towards the debt as humanly possible.

EmmaMicawber

When you say your mortgage is "up for renewal" in 2 years, do you mean the whole mortgage term will end and you'll have to repay it all or else take out a new mortgage/ extend the term or do you just mean the particular deal you are on will end but your mortgage repayment date is many years away?

If it is only the deal, not the term, don't worry about your credit rating. We owed a lot more than you a year ago and had a terrible "very poor" credit rating but managed to swap deals, staying with the same building society, by just clicking a few buttons online- no credit checks required. so being on a DMP should make no difference if you just get a new deal from your existing provider.

As far as a fresh start goes, I'm guessing that your family loan of £35,000 was planned to be a fresh start? I totally sympathise (as someone who is one year along the debt repayment road) but agree with the PPs that selling your home may just hide the reasons you've got into debt twice already. And if there's a next time you won't have that safety net left to use.

I too think that biting the bullet and considering a DMP and actually living on a sensible budget where your outgoings are less than your income is the way to go. It will mean you can develop good habits, your kids will benefit from seeing you do this as well rather than seeing you sell up and move somewhere because you couldn't manage to budget. And once it's paid off you can be confident that you'll never get into debt again because of your proven success at managing your money rather than the quick fix of sacrificing your home.

I personally have found YNAB brilliant to show us where money has gone, and needs to go. It has been the mainstay of our debt-busitng journey so far together with MSE and Dave Ramsey (see youtube). There is plenty of other budgeting software used by other DFWers as well.

Looking at your SOA the categories that jump out at me as being much larger than our family are:
Food- actually pretty reasonable but I swapped to Lidl last year and my food bill has reduced by 30% or so
Pets- insurance gets expensive as they get older. Could you ditch the insurance and put aside an amount every month? And save an emergency fund of £1000 before starting your DMP (by reducing payments to the credit cards) so you have some set aside for emergencies with pets/ cars etc.
Mobile phones- This is huge! Pay as you go SIMs are £7.50-10 for decent data/ texts/ calls
Entertainment- Can you find cheaper/ free ways to have fun?

Well done for facing up to things- imagine how you'll feel, and the valuable lesson you'll will be teaching your kids by getting help, making a budget, living within your means and then reaching the point where your salary is yours to do whatever you like with - not as now where it already belongs to the banks.

I was where you are a year ago- and I was sleepless, stressed and miserable. Though I still have a long way to go, the peace of mind from knowing I am in control of my money now, not it being in control of me is priceless. No more sleepless nights and I'm confident that we won't get into debt again as for the first time ever we consistently spend (including debt payments) less than we earn!

Best of luck