Release Equity to Pay off Debt

Are you keen to know more about using equity release to pay off debt? Our 2024 guide is here to help. Every month, over 7,000 people come to our site for advice on equity release.

In this article, we’ll explain:

• What equity release is.
• How it could help you pay off debt.
• Who can use equity release schemes.
• How to get a good quote.
• And the key things to think about before you start.

We know that equity release might sound tricky. Maybe you’re worried about the risk to your home or not sure if it’s the right choice for you. We’re here to make things clear. With our guide, you can understand how equity release works and make the right decision for your future.

We’re here to support you every step of the way. So, let’s get started and explore how you can use equity release to pay off your debts.

Can you release equity to pay off debt?

You can release equity to pay off debt. If you have outstanding debts in later life, releasing equity and then using the money to pay off your creditors is possible. 

Because equity release is a type of loan, then this would be considered debt consolidation, i.e. you are paying off multiple debts with a new debt. The big difference is that using equity an release plan to clear debts will not require any monthly repayments on the new debt, whereas using a debt consolidation loan requires immediate monthly repayments. 

Can I borrow more on my mortgage to pay off debt?

It also might be possible for borrowers to borrow more on their mortgage to pay off debt. Although you secure a bigger mortgage against your home equity, this isn’t exactly the same as equity release. Monthly payments on the new mortgage will be due immediately after it is taken out. 

It works by swapping your existing mortgage for a bigger one, and then using the extra borrowing to pay off debts. Thus, you have moved all your debt into one place. The new mortgage should have a lower interest rate compared to the cumulative interest being paid on the debts. 

But you should also take note of additional fees, which could make this method of debt consolidation more expensive, such as early repayment fees on the original mortgage and the debts. Everything needs to be considered before making a move. 

Is remortgaging to pay off debt a good idea?

It’s possible for many debtors to reduce the amount of interest they need to pay on their debts by remortgaging and consolidating those debts. They save money and no longer have to worry about juggling multiple monthly payments, which in itself reduces the chances of payment defaults and arrears. 

It is worth it to remortgage to pay off debts if you can secure a lower interest rate and still save money after having to pay any additional fees, including but not limited to early repayment charges and closing costs. 

It’s worthwhile doing research into the other methods of debt consolidation, as these could offer even better repayment terms. 

Alternative ways to pay off debts

We have covered how you could release equity to pay off debt, and how you can borrow more on your mortgage to do the same. But are there any other ways to pay off your debt? Yes – and we’ll explain some of the most common here:

1. Debt consolidation loans

Debt consolidation loans are a type of personal loan that must be used to pay off other debts. They may be unsecured or secured by one of the debtor’s assets – and they are sometimes still available to people with bad credit. They can be found at high-street banks, building societies and through online loan providers. 

2. Credit card balance transfer

A balance transfer credit card is a special type of credit card that allows the user to transfer credit card debts from elsewhere to the card. To do so you will have to pay a small fee, known as a balance transfer fee. The balance transfer card should have a lower interest rate than your other credit cards, and it is common for the card to have an introductory 0% interest rate. Overall, it is a way to consolidate credit card debts and save some money in the process. 

3. Debt solutions

A wide range of informal and formal debt solutions are available to debtors. For example, a Debt Relief Order could prevent creditors from asking for any monthly payments for a whole year, and if your finances have not improved by then, your debts are written off. There are different debt solutions based on your personal circumstances and the (amount of) debt you owe. 

Is equity release a bad idea?

Equity release can be a good and bad idea. To determine if it is a good idea for you, you’ll need to consider the specifics of the plans available against personal circumstances. 

For example, someone without children may feel that equity release is a better idea for them compared to someone with children who they know are relying on an inheritance to make life more comfortable. 

Having or not having children is by no means the only thing that decides if equity release is a good or bad idea. This is just one example.