I agree with your appraisal of your financial situation, in that now is probably not the best time to consolidate your credit card debt using the equity in your home. Since you are planning to purchase a new home as soon as you complete the sale of your current home, you will need the cash from the sale to make a down payment on your new home. Being able to make a significant down payment on your new home should allow you to obtain a better interest rate than you would obtain with no down payment, possibly saving you tens of thousands of dollars over the life of your new loan. While your amount of debt may cause some problems in obtaining a new mortgage (you will have a very high debt to income or "DTI" ratio), coming to the table with a significant down payment should help you overcome this problem. Also, your new lender or broker can work with you to obtain the best interest rate possible, based on their underwriting standards. For example, it may be best to pay off $10,000 in debt and use $15,000 for the down payment; you should discuss the best way to use your funds with your lender, as they will be able to provide you with the best advice.
Even if you did want to consolidate your debts using the equity in your current home, you do not have enough equity to consolidate all of your outstanding credit card debt. Based on the information in your question, you have $25,000 in equity, but you have $50,000 in credit card debt, meaning the equity in your home will only repay half of your outstanding debt, assuming you could obtain 100% financing on your consolidation loan. I think you should sell your home, use the cash you obtain to purchase a new home, then consider the best way to resolve your outstanding credit card debt. In the meantime, I recommend that you continue to make at least your minimum payments on your credit cards, as you need to maintain your credit score so you can obtain the best possible interest rate and terms on your new mortgage. To learn more about mortgage loans and the options available to you, I encourage you to visit the Bills.com Mortgage Resources page.
If you enter your contact information in the Bills.com Savings Center at the top of the page, we can have several pre-screened mortgage brokers contact you to discuss the loan options available to you.
Once you have purchased your new home, you can begin looking into the options available to help you resolve your outstanding credit card debt. One option to consider is a Consumer Credit Counseling Service, or CCCS. CCCS companies offer numerous services, such as financial counseling and budget planning, as well as Debt Management Plans (DMPs). In a DMP, the CCCS would arrange a new payment amount with each of your creditors, usually based on a reduced interest rate. You would then make a single monthly payment to the CCCS which would distribute the funds to your creditors, based on the new payment amounts. There are several drawbacks to CCCS, though. First, depending on your creditors, it may not be able to reduce your monthly payments enough to improve your financial situation. Second, it may have a negative impact on your ability to obtain a loan, so you may not wish to enter into a DMP if you anticipate any large purchases, such as an auto, in the near future. Third, the average DMP takes around five years to pay off your debts, so you must be willing and able to commit to a long-term repayment plan.
You may also want to consider the services offered by debt settlement firms. Rather than making monthly payments to your creditors, these programs negotiate lump sum settlements with your creditors, frequently reducing your debts by 50% to 60% of your principal balances. These programs usually take only 2-3 years to complete, so this is a good option for many people to rid themselves of debt in a relatively speedy manner. In many cases they can also reduce your monthly payment toward your debt. There is one major drawback to debt settlement programs, though -- they will significantly damage your credit while in the program and for at least a year or two afterwards. However, if you are currently unable to afford to pay your creditors, the hit to your credit may be worth the benefit of ridding yourself of credit card debt.
One of the several options I have described above may be able to help you resolve your outstanding debt, but the best choice for you will depend on your specific financial situation. Regardless of the debt relief option you choose, I recommend that you wait until after you have purchased your new home to resolve all of your debt, as the options I have described could both damage your credit rating and result in a higher interest rate on your new home loan. I encourage you to read more about the debt resolution options available to you.
I hope this information helps you Find. Learn. Save.