From everything you’ve posted you should definitely do option 1.
AND
you should work on the debt – all 3 of the debts: auto, credit cards, student loans. Look at snowballing – starting with the highest interest (CC or car loan).
Do not renew the lease on the van when it comes due. Buy a used car at that point. If you have a garage – use it for the car – cars like garages.
Your garage will be empty and able to take the car because you’ll be selling your “stuff” as mentioned above. Kids bikes and stuff can be hung from the rafters or walls to free up space.
I agree with the suggestion for looking for budgeting and cost savings. Look specifically at recurring bills – cell phones, switch to a pay/go plan like t-mobile, virgin, ting, etc. (We have 4 smart phones on Ting and our last bill was $68 for the month.) Switch to VOIP for your landline if you keep a landline – OOMA, MagicJack, whatever. Cable – do you need it? Do you need premium channels? Do you *have* to have high def – I went to battle with Time Warner and got the barest basic cable (no high def, no scrambled channels, no cable cards or settop boxes) and slow speed internet for $35/month. Sure beats the $120 I was paying for the same slow speed internet, 1 cable card, and high def channels.
MrMoneyMustache is a great blog/message board – but some of the posters over there can be less than friendly. That said – it’s a great place for ideas of how to cut your budget (and be green at the same time.)
Basically – the biggest thing you need to work on is spending. Every single NON essential purchase should be evaluated and considered. If you buy a starbucks coffee, rather than using that money to pay down debt, you’re effectively paying interest on that purchase. Essential purchases are food, shelter, debt service. Even clothes can be budget reduced – (Good Will, repairing tears and missing buttons.)
