Using equity from a house sale to repay debts?

Fife_Flyer

Hi everyone,

I’m very new to this forum, although I have read many of the posts over the past few weeks. It seems that many of you are facing up to your situations and the amount of debt you’re carrying and asking for help, support and advice in order to get out of debt for good. Well, I thought if others are brave enough to do it, then there’s nothing to stop me doing it also.

Having read through the posts, it seemed that everyone was suggesting that the first thing to do was to write down all outstanding debts and then to do a budget in order to determine how best to pay down those balances. It was only after having added up all the unsecured debt (a personal loan and balances on three credit cards) that I realised just how much money I owed – a shocking £13K! The personal loan is paid every month by direct debit and I make payments every month on the credit cards. However, I find that I can now only afford to make payments of the required minimum on the credit cards and this is worrying as the balances are not coming down by very much, if at all.

Due to a recent change in circumstances (sold my house and now renting), I have re-hashed my monthly budget and find I am now going to be overspending by about £120 a month. Not good. I have identified a couple of areas where I should be able to make savings, but I doubt they will amount to anything like £120 and even if they did, it wouldn’t help me pay down the outstanding balances any quicker. However, my debt repayments are currently in the order of £260 per month, so if I were not paying this out, I would not be over budget!

My conundrum really is this: I was fortunate enough to have some equity in my old house and that is stashed away in various savings accounts etc. I have enough money in these accounts to pay off all my unsecured debt. However, if I use it to clear the debts, I’m fearful of

a) using what is effectively my deposit on a new property in the not too distant future meaning I may require a much higher mortgage advance

and,

b) not having the discipline to ‘pay myself back’ out of my salary. Theoretically, I would have to use the money currently allocated to the monthly debt repayments (minus the current budgeted overspend of £120 = £140 per month) to pay myself back.

What would you do in this situation? I would be very grateful for any advice and suggestions.

Thanks.

skintchick

Right, there are two questions here, and the answer to the first one might make the second one redundant.

Are you planning to buy a new house in the NEAR future? If yes, then leave your deposit alone.

BUT you need to be aware that you are possibly getting less interest on your savings than you are paying on your debts, which doesn't make sense.

On the discipline front, that is an issue only you can sort. BUT you shouldn't even be thinking about saving while you have massive debts to pay.

It might help if we had figures for your savings and the percentage interest rates you get/pay, plus your plans for housebuying.

Also, if you post your full buget and incomings, we can help you slash things to find extra cash.

Bestthingsinlifearefree

Hi Fife,

If you are paying higher interest rates on your debts than in your savings I would be inclined to pay of the debts.

I understand your reluctance to use your lump sum. But you will feel a lot more peace of mind once those debts have gone and you are living within your means each month.

Maybe set up a direct debit from your current account into say a ING account so you automatically repay yourself.

Or go half way pay of half the debts (ie the ones with the worst interest rates ) and keep some of your cushion / deposit.

At the moment you are going further into debt each month ie minus £120 luckily you have the power to solve this.

Or increase your income by £120 per month (extra part time job) then you can pay of your debts AND keep your lumps sum.

Whatever you decide at least you have positive options and as of NOW make sure you live with in your means. If you use your savings to clear your debts...PLEASE PLEASE then do not run up new debts. you need strong discipline to live with in your means.

Good Luck !!!!!!!

Fife_Flyer

Thank you for your replies – much appreciated. I’ll list the numbers to give you a better idea of what I have coming in and going out each month. I’ve only just moved into my new place, so the utility bills are monthly ‘guesstimates’ based on my previous outgoings.

Salary 1100.00

Rent 475.00
Council tax 79.00
Gas 30.00
Electricity 20.00
Water 15.00
Telephone 40.00
Contents Insurance 11.00
TV Licence 11.00
Groceries 120.00
Petrol 40.00
Mobile phone 30.00
TV package 8.00
Vehicle Insurances 35.00
Personal loan 124.00
Barclaycard 92.00
Capital One 35.00
A & L 11.00

Total 1168.00

If I factor in a monthly allowance for vehicle road tax and ‘other’ costs, then that increases the amount by another £85.00 or so giving a grand total of £1253.00 and a net overspend of £153 per month – worse than I thought originally!

The rates on my unsecured debt are:

Personal loan 9.9% with a balance of 5500.00
Capital One CC 14.23% with a balance of 1870.00
A & L CC 14.90% with a balance of 1850.00
Barclaycard 2.9% until paid off with a balance of 3650.00

I’m getting less than 5% on the equity money put into savings.

I do not intend buying another house until early summer next year, or possibly longer than that depending on circumstances. I’d say it will be twelve months at the most before I look to buy. Providing I do not touch the house equity, I anticipate requiring a mortgage advance in the region of £60,000 when I do buy again.

The discipline issue is quite an important one – I’m struggling even now not to draw out some cash and buy nice, shiny new things! How I’d manage to repay myself I do not know… Be strong I guess and resolve to resist temptations!

Until I sat down and did the number crunching, I wasn’t overly concerned about making ends meet or paying down my debt – now I’m very alarmed and have started having sleepless nights over it.

A part-time job is a possibility to earn extra cash, although one I would never have envisaged and is something I will look to explore.

I hope there is enough information here for you to offer suggestions on driving down costs and trying to decide the best course of action.

Oh, I have no family responsibilities being single, so only myself to blame.

I appreciate your support.

Bestthingsinlifearefree

Hi Fife,

Good for you you are tackling things head on and you will sleep a lot better for taking action.

Initial thoughts are your telephone bills are way, way to high. Any reason for this ? Have you got a pay as you go mobile used for essetial calls only.

If you don't mind me asking how much cash have you in savings from your house sale, and what interest rate are you getting on this ?


Are you using cash mini ISA's ?


The discipline thing you solve with a direct debit from your current account into your savings account and KEEP A SPENDING DIARY...write down everything you spend each day.....and this should motivate / shame you into not wasting cash on shiny things !

Could you apply for a 0% interest card (see credit card sections) and transfer the balance from your 14% interest rate cards to 0% deals etc etc and then close your old credit card accounts to avoid temptation.

skintchick

Your groceries are way too much for one person. I spend £60 a month on food/cleaning stuff which is tight but do-able. Try and cut back a bit there.

rprinter

Hi Fife Flyer

don't be too harsh on yerself you seem very organised and determined. If I were you I'd pay off all but the Barclaycard 2.9% LOB. Then your starting with a 'clean sheet'. All that extra money you're going to save old stylee you can save for your deposit, instead of paying to the greedy banks in high interest charges.

I'd leave the Barclaycard balance alone - its costing less than the credit interest you're earning, of course.

roversbabe

Hi Fife Flyer

Are you able to transfer your other cc amounts to your Barclaycard at the 2.9% LOB rate. If you can, cut up the other cards and you'll be paying far less interest so you can see the debt reducing.

Good luck

rb x

Fife_Flyer

Hi folks,

Thank you all for your replies and suggestions - I'm really grateful to everyone for passing on your ideas.

Thank you for pointing out the rather steep telephone bill - I stupidly included the quarterly costs instead of the monthly cost! It should be about £13 or £14 a month, not £40.

My mobile is on contract (due to finish in December) and I'll certainly look to halve the cost of that by going PAYG. I'm a bit of a text addict, so the contract includes 500 SMS per month.

I have around £50K from the house sale. I have maxed out my mini cash ISA and am earning 4.75% gross on the remainder.

I'm still worried about the self-discipline, but I've got to do whatever is necessary ands agree that a DD every month would be essential in maintaining it.

I'm going to get a little notebook tomorrow so as to keep the spending diary - keep the temptation at arm's length!

I don't think I would gain a lot by transferring the balances to a 0% card - I'd never pay it off before the zero % finished.

I haven't spent (and won't spend) on the Barclaycard in order to keep the 2.9% special rate. Barclaycard will allow me to transfer part of my other outstanding balances at 6.9% for life of balance.

As suggested, I'm thinking that it would be a good idea to pay off everything else and keep the Barclaycard as it's less than I'm getting interest on my savings - good point.

I thought I was being quite frugal with my grocery budget - you eveidently do not agree. I'll have to look at that again to see if I can get it down.

Thanks.

frosty

Hi Fife Flyer, if you balance transfer to 0% cards then the interest you would of been paying would go towards reducing your debt,about 4 weeks before your 0% is finnished apply for more 0% cards and do a bt,close your accounts when you do a bt. I had 12 credit cards but I have managed to reduce this to 5 by doing bt,and closing other cc accounts and cut up your cards, at the moment I am doing the grocery challenge.......I was spending about £120.00 a week on food (2 adults+ 2 teenage boys)........doing the challenge for september I spent £240.00 for the whole month, October my budget is £200.00 for the month, to date I have spent £49.92 in Tesco,we pay £10.00 a month and get 200 texts and also off peak minutes (payg) so you should save alot by switching,have you been to the money saving oldstyle threads? they have helped me to cut back drastically, I forgot to say ,if you decide to apply for more 0% cards they will say a 2% fee may be payable , query it and they dont usually charge you,we have done this with all our cards and have never been charged.

Robert_Sterling_3

Fife_Flyer wrote:

Capital One CC 14.23% with a balance of 1870.00
A & L CC 14.90% with a balance of 1850.0
I’m getting less than 5% on the equity money put into savings.
.

Here we have borrowed money ... Total ... £3720

Interest £541.75 per annum

The same money earns less than £186 per annum.

If the £186 is taxed at 20% then net interest is £148.80

PAY OFF THESE CARDS IMMEDIATELY.

Save approx £30 per month.

Good luck.