Pay off debts, or extend the house?

A question about : Pay off debts, or extend the house?

We have a sizeable chunk of money available to us, via an inheritance (around Ј60,000)

We have five credit card debts between us. Three are with DCAs, the other two are having minimum monthly payments, or fractionally over, made - Ј100 each per month.

The debts with the DCAs are being paid at Ј125 per month, Ј30 per month and Ј50 per month.

This makes a total of Ј405 servicing the debts.

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

The Ј60,000 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 Ј12,000.

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 Ј60,000, 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?

Best answers:

• I think you'd have to be crazy not to pay off the debts.
• 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.
• Definitely pay off the debt, invest in house improvements and get yourself an emergency fund
• 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.
• 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 Ј12000, keep a Ј5-6k emergency fund and do the home improvements gradually rather than make some builder rich by doing them all at once.
• If you've got debts of Ј12K and an inheritance of Ј60K, then after paying them off you've got Ј48K 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 Ј60K, 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.
• Pay off the debt, leaving the Ј48k. 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 Ј405 you pay towards the debt into a savings account which will top the inheritance back up again as you go along.
• 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...
• 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 Ј45k 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 )
• Total no brainer- pay off the debts.
  If you continued to put the Ј405 into savings each month you'd be back up to Ј60k in less than 2.5 years AND you'd earn a helpful amount of interest on the Ј48k in the meantime.
  Wow, you have SUCH a brilliant opportunity to really secure yourselves financially- don't throw it away!
• It seems rather coincidental that the building work just happens to be almost the same as the money you inherited. Did you tell the builder how much you had to spend?
• You're mental if you don't pay off your debt. Absolutely bonkers.
  Pay it off and then get a whole bunch of quotes for the work you need done. If they are all around the 60k mark (you must be having a hell of a lot of work done) then either look to ways of bringing it down by either, doing some of the work yourself, sourcing materials yourself or reducing the cost of fittings and furnishings.
  If you can't do any of that, then save up the Ј400 per month that you're paying off debts and have the work done on your house in a couple of years time.
• If it was me, I would start with a cheeky 30% full and final offer to the ones with the DCA and go from there.
• I find it completely unbelievable that anyone even needs to ask this question! Has the general culture of acceptance of being in debt turned people stupid? It certainly appears so!
• A bit harsh Lovinituk, but there is certainly something in what you are saying
• If I were you I would just be feeling overwhelmed at the possibility of the financial burden coming to an end. Ecstatic actually. I wouldn't even be thinking of bricks and mortar. You must have been through enough stress with having DCAs.
  Pay off your debt. For goodness sake, pay off your debt . Is it that important to have a square kitchen and a different coloured bathroom suite.
  Then financially plan and make your money work for you. Please.
• Thank you all. I am the one who wants to pay the debts off, and as stated by Pink Poppies, if we save the Ј405 that we aren't using to pay off debts, then we will soon have plenty of money available to do what we want.
  We have spent SO long in debt that for me, the chance of being debt free AND having savings is just breathtaking. But my husband, who is the one who has inherited this money, can't seem to see where I'm coming from on this. He wants to have something tangible for his money - and in an ideal world where we had no debts, I would probably just go along with it.
  And because it's "his" money, I don't really feel I can stamp my feet and insist we spend his money on paying off our debts.
  This all started when he went to his work colleague's house and saw the huge extension that they are having built, with walls etc being knocked down internally. All for about Ј45k. And so he just fell in love with the idea of extending our house.
  And actually, I have just remembered that there's that website where you can put in your debt and the amount you want to pay each month and it will show you how long it will take to pay them off. Maybe that will sway him, when he sees how much interest we will pay, just to earn a teeny amount of interest on the money while we decided what to do with it, and then have a hugely extended kitchen - just at the point in our lives where our chicks are starting to fledge and apart from visits, there will only be us here.
  I do like moohound's suggestion of making a final offer to the DCAs though!
  Thank you all again. I will definitely show him this thread and the snowballing things (is that what it's called?) and hopefully he will see the sense in doing it my way. (It doesn't usually take me this long to persuade him that I'm right )
  And lovinituk - I completely agree with you. No need to apologise. Except for the assumption that I (the OP) was the one who was being frivolous