Will selling my house & using some of the equity to clear my debt be a good idea?

JA21

Hi All,
This is my first post on here so if it's in the wrong place just let me know.

The Debt:
I have £10k of credit card debt spread across 3 cards. The debt was accumulated whilst renovating my property so it's not been wasted money. 2 of the cards are 0% purchase cards which I will clear the balance on before the term expires but the third cards 0% interest rate expired 2 months ago and i'm getting charged around £30 interest a month. Im paying around £300 a month combined re-payments to these 3 cards too! Credit score is rubbish at the moment so I can't do a decent balance transfer for this 1 card.

The Property:
We bought the property in 2015 for £120k with a 10% deposit. We used £4k savings & £10k credit cards to renovate. We owe just over £100k on our mortgage and the property is now valued at £170k. So around £70k equity.

Solution??
The debt of these cards is always in the back of my mind. We are ready to move so I'm wondering if I should sell the property and use £10k of the equity to clear the 3 credit card debts, cut them up, gone forever!
I was then hoping to buy something in the region of £200k, so I would then lend another £40k from the mortgage company (New Mortgage of £140k) put my remaining £60k equity and have the £200k I require.
- My first worry is, with my poor credit score.. the bank may not lend me the extra £40k?
- My second worry is how I go about explaining to the bank I kept 10k of the equity to clear debts? Is this even allowed?

Any suggestions / other ideas welcome! :money:

pelirocco

JA21 wrote: »

Hi All,
This is my first post on here so if it's in the wrong place just let me know.

The Debt:
I have £10k of credit card debt spread across 3 cards. The debt was accumulated whilst renovating my property so it's not been wasted money. 2 of the cards are 0% purchase cards which I will clear the balance on before the term expires but the third cards 0% interest rate expired 2 months ago and i'm getting charged around £30 interest a month. Im paying around £300 a month combined re-payments to these 3 cards too! Credit score is rubbish at the moment so I can't do a decent balance transfer for this 1 card.

The Property:
We bought the property in 2015 for £120k with a 10% deposit. We used £4k savings & £10k credit cards to renovate. We owe just over £100k on our mortgage and the property is now valued at £170k. So around £70k equity.

Solution??
The debt of these cards is always in the back of my mind. We are ready to move so I'm wondering if I should sell the property and use £10k of the equity to clear the 3 credit card debts, cut them up, gone forever!
I was then hoping to buy something in the region of £200k, so I would then lend another £40k from the mortgage company (New Mortgage of £140k) put my remaining £60k equity and have the £200k I require.
- My first worry is, with my poor credit score.. the bank may not lend me the extra £40k?
- My second worry is how I go about explaining to the bank I kept 10k of the equity to clear debts? Is this even allowed?

Any suggestions / other ideas welcome! :money:

Selling a house comes with a lot of fees and you wont actually be getting rid of the debt you will be converting into a secured debt and paying much more interest over the term of your mortgage. I think the advice is always to look at your outgoings and see where you can cut down to pay off the debt as quick as you can

JA21

Thanks. I think your rite and I did not really think about how much interest that 10k would accumulate in interest when put into the new mortgage.

I also have a car worth around £12k that will be fully paid for in 12 months time. It should still be worth around £10k by then so I'm thinking of selling this to clear the debt. I will then have to get a new car deal of some sort but at least my cards are gone for good! :T

enthusiasticsaver

If I were you I would delay moving until you are in a better financial position. First because if your credit rating is bad you won't get offered the best mortgage rates even though your LTV percentage would be below 75% and second you presumably don't have savings or you would get rid of the card costing you £360 a year in interest. This means costs would also need to come out of your equity so instead of £60k equity you would end up with around £54k or £55k equity so a bigger mortgage.

I would concentrate on getting rid of the debts, build up savings for mortgage costs and sorting out your budget so you are not overspending.