Should I Sell My House to Pay Off Debt?
Being in debt can be stressful, overwhelming, and downright terrifying. You may feel like you’re stuck in a hole, trying to dig your way out, and you might start to feel like you’ll never escape that burden.
If your debts get too large, you may even start looking at what you can sell off to alleviate some of that financial strain.
When you’re in that situation, you might start to ask, “Should I sell my house to pay off debt?” Read on to learn more about this option and when it might be the right choice for you.
Is Your Mortgage Too Much?
If you’re considering selling your house to pay off debt, one of the first things you should do is consider how your house impacts your overall financial health.
Your house is a major investment; if you can avoid selling it, you’ll get a greater return. However, the house must also make financial sense, for you, for that to work. For example, you may have realized, recently, that your mortgage is too much for your current budget. Whether you got in over your head or your situation changed, you’re likely to only sink deeper into debt the longer you stay in your house.
Selling that hefty mortgage and using the profits to get rid of debt can give you a good financial reset.
Are You Already Planning On Moving?
Of course, if you’re moving anyway, using some of those profits to pay off debt can be a great option. You’re already selling your house, so the real question is how to spend the profits you get from that sale; putting it towards a new house can be great, but you may want to withdraw some of that money to clear your debt.
Depending on where you’re moving, you might be able to downsize to a smaller house, or even rent an apartment for less money than your mortgage. And with your debts paid off, you can get into a better financial situation than you would have in your old house.
If you have to choose which debts to pay off, you should take care of your smaller bills first so you can roll those payments into tackling your larger bills.
Will Your Profit Cover Your Debts?
Another thing you need to consider when looking at selling your house is whether your profits will cover your debts. If your mortgage isn’t too large, and you aren’t already moving, you might not have a good reason to leave your house; your new housing obligations may be the same or larger, and you won’t build equity in your house.
Sometimes, your house may be nice enough, or your debts may be small enough that the expected profits will cover those debts. If this is the case, you might want to take some time to evaluate how critical it is that those debts be paid off right now. Ask yourself if it’s worth leaving your house for, or can you find a way to slowly pay them down through other means?
Will Your New Living Arrangements Be Cheaper?
If you do decide to sell a house to pay off debt, it’s important to think about what you’ll do after the sale is complete; you have to have somewhere to live, and unless you’re moving back in with your parents, those living arrangements are going to cost money. So, you’ll need to ensure those arrangements are more affordable than your current house.
If your new living arrangements are more expensive than your current ones, you will end up in more debt than you had before. If they’re just as expensive, it comes down to whether you have to pay those debts off right now, or if they can wait. In either case, make sure your future will be manageable even after your debts are paid down.
Can You Take a Loan?
There are several options to pay off debt without having to sell your house; a great option to consider is to take out a Home Equity Loan. This loan is based on your current equity in your home, so you’re essentially borrowing money from your house.
A Home Equity Loan is likely to have lower interest rates than credit cards, for instance, and you may be able to extend the amount of time you have to pay them off.
If you plan to take a loan to pay off debt, you need to remember that you’ll still owe the same amount of money at the end of the day. However, you may be able to get different terms on your new loan than on your current debt.
Can You Seek Out Financial Counseling?
Before you decide to sell your house to pay off your debts, exploring all your financial options is a good idea. Selling your house may be the best option, but it is a drastic lifestyle change. Furthermore, depending on how you got your debts, it may be a temporary solution without other intervention.
Talk to a financial counselor about your debt and current financial situation before making any final decisions. Often, your bank will provide these sorts of counseling services free of charge. The counselor can help you explore all your options and decide the best long-term solution for you.
Conclusion
Your house is likely your largest financial asset; selling it can be a great way to pay off debt.
However, you need to consider all aspects of your situation first, including the cost of your mortgage, whether you’re moving anyway, and whether the profit from your house will even cover your debts. It would help if you also determined what your new living arrangements will cost and what other avenues you can pursue before going this route.
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