Debt can be a real thorn in your side — especially high-interest unsecured debt, like credit card balances and medical expenses. When compound interest keeps driving up how much you owe, sometimes it feels like you’ll never be able to escape your debts.
So, you start considering more drastic options.
You might even ask: Should you sell your home to pay off debt? Well, it really depends on your exact circumstances. Here are a few things to think about as you mull over this momentous decision.
How Much Equity Do You Have?
The first thing to examine is how much equity you’ve built in your home, or the amount of your home you own. Simply subtract however much you still owe in loans from the current market value of your home.
If your home is worth $350,000 and you owe $200,000 on your mortgage. Your equity is $150,000. Now factor in closing costs for the seller, which Realtor estimates to fall between six and 10 percent of the home’s sale price. That’s about how much you could realistically expect to make if you sold your home now.
If your home equity is low — or negative — selling your home would free up little to no funds for paying off your debts. On the other hand, if you have a decent amount of equity amassed, selling your house is an option.
Would You Move if You Didn’t Have to?
The next question to ask is whether you’d move if you didn’t feel obligated to do so.
As a homeowner, you’ll likely have a different relationship to your home at different points throughout your lifetime. If you’re an empty nester living in an oversized home years after your last child has left, you might be considering downsizing anyway.
If it’s always been a dream of yours to move to the other side of the country, you might decide now is the best time to start applying for jobs in a different city. If the move could also help you tackle your debt, well, that’s all the better.
However, if you’re very attached to your home and would only move if it was your absolute last resort, you’ll want to explore other options before giving up your beloved property.
Consider Other Debt Elimination Options
Getting rid of debt means making tough choices. But you don’t necessarily have to give up your home — provided you can find another debt elimination strategy that works. Start by looking around online to see what people in similar situations have done.
Here are a few approaches to research:
Consolidating your high-interest debts involves using a loan to pay them off. The main advantage is you may be able to save a significant sum in interest. Not everyone will qualify for a consolidation loan at a reasonable rate, however.
Settling your debts means saving a certain amount of money, then negotiating with creditors. Creditors may agree to accept a smaller payment in a timely manner if they believe the alternative is receiving nothing. As many people who have worked with the nation’s largest settlement organization have noted in Freedom Debt Relief reviews, this is an option for people who are struggling to keep up with minimum payments, but want to avoid bankruptcy.
Bankruptcy is a drastic move, but you may be able to file for Chapter 13 protection while keeping your house. Your eligibility will depend on your income level and the amount of debt you’re carrying. You’ll be best off working with an attorney to navigate this process. Make sure you weigh the pros and cons carefully before forging ahead, as the effects will stay on your credit report for years to come.
Should you sell your home to pay off debt? Like most money-related questions, the true answer is — it depends.
Disclaimer: This content does not necessarily represent the views of IWB.