Here are a variety of ways you could try to improve your financial situation by selling things. The bigger your current problems, the more you should think seriously about these options.
The small stuff
Selling old clothes, toys the kids have grown out of or DVDs isn’t going to solve a big debt situation.
But it could help you with some very useful shorter term goals – kick-start your debt reduction or get you the beginning of an Emergency Fund so it’s your budget is less likely to be derailed while you are paying off your debts.
The decluttering might be a good thing as well! So have look at eBay or Amazon or a car boot sale. Here is a video of an expert ebay seller helping a friend declutter her understairs cupboard and see what the best place to sell some of the items is.
Ask yourself if the interest or dividends you are getting from your investments is more than the interest you are paying on your debts… No? Sell them!
Of course the shares may go up in value – but they might go down too.
If you have shares in some form of employee-incentive scheme, you may be reluctant to sell them / take your money out as you will be losing valuable tax benefits. But you should still stop and think hard about this. You have problem debts – you need that money now. Don’t let the tax tail wag the dog is a good maxim when it comes to finances.
If you are over 55, it may be possible to take some or all of your pension early and this may give you the option of a tax-free lump sum, which you could then use to clear your debts.
BUT this may be a very bad idea for you. Taking your pension early and/or taking a tax-free lump sum will reduce your pension and there may be high tax charges if you do this while you are still working.
See Should you use your pension to pay off your debts? for details as there are a lot of things to consider here.
Your car is going to be worth less next year than it is this year.
Cars often cost a lot in car tax, insurance, petrol, residents parking and even parking tickets… so have you added up just how much yours is costing you every year. Don’t forget to regular maintenance costs – MOT, replacement tyres, brake pads etc.
So it’s worth thinking if you could manage without a car, if you have two cars, just with one? Imagine you have lost your license – what would you then do to cope?
What would you get if you sold them? Say you could raise £800. If you had £800 in your pocket today, what would you do with it – go out and buy some jewellery? Probably not…
Unless there is a lot of sentimental value in the valuables, you should consider selling them if your debt situation is serious.
Of course if a bit of belt-tightening and a lot of careful budgeting will see you clear in a couple of years, then selling things you love to bring that forward to one year probably isn’t worth it.
Ways of realising value from your house
You may have a lot of money locked up in the value of your house.
Should you sell it?
If your house is the wrong size or in the wrong place or you are struggling to afford the mortgage, then you should think about the option of selling the house. This is never an easy decision – read Selling your house for more thoughts on this.
Get a larger mortgage or a secured loan
This used to be very common before 2008 – and a lot of people ended up with a lot of debt when they tried to dip into the value of their house too often.
This isn’t that easy any more. You may think it’s obviously better to be paying a low rate on a mortgage than a high rate on credit cards, but if something goes wrong – you get sick or are made redundant, then there are ways to manage unsecured debt such as credit cards and loans and still keep your house. But if you have exchanged unsecured debt for secured debt your house is at risk.
Read the Pay less interest for the major disadvantages that you must consider carefully.
Sell an endowment linked to your mortgage
This may be an option if you have an interest-only mortgage and are expecting to pay it off with an endowment.
This is the same as increasing your mortgage to clear your debts, but it has the advantage that you don’t have to get a new mortgage which can be difficult or not at a good rate.
You will also not have to pay the monthly endowment payment, which is good, but you will be losing life assurance cover that goes with the endowment, so if you have a family you may need to get more insurance.
But if you decide to do this, you need to have an alternative plan for repaying your mortgage.
Interest only mortgages without a plan to repay them are a big problem, unless you are happy to sell the house when the mortgage ends.
Take cash out of an offset account
if you have an offset mortgage, you could take any money out of the offset account. In there it is effectively earning the rate of interest that you are paying on your mortgage – which is peanuts compared to what your unsecured debts are probably costing. So this makes sense, but again it means that you will have a bigger mortgage task to tackle once the unsecured debt problem is resolved.
Get a lodger
If you have a spare room you could rent it out. Income from this is tax-free up to £7,200 a year.
This doesn’t let you clear debts immediately but lets you pay them off a lot faster.
It is more flexible than the other house value unlocking options – you could give it a go for 6 months and decide if it works for you. And if putting up with a lodger for a few years clears your unsecured debts, after that you can have the house to yourself again.
A house you are renting out
Is this a profitable investment or a millstone round your financial neck?
The rent you are getting needs to be more than the mortgage you are paying to cover your other costs – insurance, agent’s fees, repairs, void periods etc. On a rough rule of thumb, you should be setting aside 15% of the rent each month to cover voids and repairs – if you aren’t then it is a disaster waiting to happen.
If the house rental clearly is profitable, then you need to consider if this profit after tax is a good return on the equity you have in the property. It might be contributing a useful £150 a month to your budget, but if you would get £30,000 if you sold it, that would clear a lot of credit card debt which is costing you far more than £150.
If it isn’t profitable and it has negative equity then have a think what your situation would look like without the house. Remove the income and the expenses from your Financial Summary and add in a new unsecured debt for the amount of money you would still owe the mortgage company after it was sold, allowing for estate agent’s and solicitor’s costs.
Many people are struggling to hang on to a property that they will never live in again (perhaps it’s too small or your job has moved) in the hope that house prices will rise – don’t be one of them, take a cold hard look at your options, including bankruptcy if necessary.