Selling Your Home to Pay Down Debt? Here’s What You Should Know

Debt Payoff

Unfortunately, many of us understand what it’s like to suddenly be in overwhelming debt. Whether it be because of unexpected damages to your home, hospital bills, or other seemingly innocent reasons, it’s easy to find yourself in thousands of dollars of debt with no easy way out. Thanks to high interest rates and the high cost of living, debt can continue to grow and it can seem completely impossible to pay it all off.

There could be a solution – that is, if you own a home. You could sell your home, pay off debt with the sale proceeds and be on your way. This may sound like an extreme solution – and it is – but it might be the only option depending on your situation.

You may want to sell your home and rent for a while as you gain better financial ground. After all, real estate values don’t always go up while taxes and maintenance costs will continue to grow. Therefore, when you are in debt over your head, selling your home starts to sound very attractive.

But there are some things to take into consideration before you sell your home to pay off your debt. This solution does not always work for everyone and in some cases the proceeds from the sale may not cover all of the debt and high interest rates.

Is All Debt Bad?

It may sound like a question with an obvious answer, but the answer is no, not all debt is bad. Some forms of debt such as car or business loans can be beneficial and can improve your credit health and credit score. At least within the United States, it’s considered standard to take out loans for bigger purchases so it won’t necessarily hurt your financial reputation if you have one.

However, if you’re at a point where you’re in debt but you cannot manage to pay your bills every month then even debt that can benefit you should be considered bad debt. If you’re struggling to pay your mortgage or are having a hard time paying your other bills then you should consider getting out of your current situation. And selling your home is just one way to do that.

How You Should Approach Debt

If you find yourself in overwhelming debt then you need to sit down and truly evaluate your spending. It’s a hard process and you have to be honest with yourself but once you finish writing down a list of all your bills as well as your loan totals you can come up with a strategy. In addition to knowing how much you owe for each loan, you need to know what the specific interest rates on each loan is. This will be crucial in helping you decide which loans you should tackle first.

Once you figure out which loan has the highest interest rate, you should put all your available funds towards that account. Paying off your highest-interest loans first will help you save money in the long run as you will be putting more towards the actual loan amount rather than interest.

You should always pay more than the minimum payment. In fact, you should always pay as much as you can every month to really get a handle on your debt. If you only pay the minimum you might find yourself paying hundreds if not multiple thousands of dollars more than you need to.

When Selling Your House Makes Sense

In order to pay off your debt from the sale of your home, you will need to have enough equity in the home. If you own your home and it is valued at $175,000 and you owe your mortgage company $100,000, in theory you can expect to net around $75,000 less closing costs and commissions.

As we are recovering from the housing crisis in 2008, more and more homeowners are finding themselves in position to receive profits from a sale. Therefore, those who have large consumer debt may want to consider selling and using their proceeds from the sale to pay off debt. You’ll need to weigh your options and be truly sure that selling your house will leave you in a better situation than you currently are in.

Rental Markets May be Too High in Price

The rental market can be a tough one. It does not always pan out for homeowners to sell their homes and then rent for a while. Rents are often too high in some markets and are continuing to grow over time. In a lot of cases, owning a home is less expensive than renting one. This can be a real problem for someone who sells and finds themselves at the mercy or the rental market. 

When you sell your home, you need to remember you will have selling costs as well which can get quite expensive. Sellers pay these fees out of their sales proceeds. So that initial profit you thought you would make will be reduced by closing costs, commissions and/or attorney fees. 

Debt Reduction Options

Maybe selling your home is not the best option for you because in the end you will not net enough proceeds, or the rental market is not one you can afford. There are reputable debt management companies that can help counsel you and some may even help you negotiate your debts. 

If you decide selling your home is the right option for you, it is suggested you take a look into your financials. Start new spending habits and create a monthly budget so you can avoid getting too far into debt again. 

Selling your home can work for some but be sure to consider your options first. Often homeowners are looking for a fast solution and that is not always the best. If you want to be in the housing market, maybe debt management is best for you so you can get out of debt and then sell your home when it will be more profitable for you. 

Sell Your House Fast

If you’ve weighed all of your options and you’ve decided you want to sell your house quickly, we can help. It’s understandable to be worried about getting a fair deal and having an open and honest experience with situations like this, but we pride ourselves on just that. In fact, when you work with us we’ll keep you looped in every step of the way so that you know you’re making the best decision for yourself.

When you reach out to us for a free consultation, we’ll talk about your house and discuss your situation so that we get enough information to make an informed calculation as to what the best cash offer we can give you on the house is. One of the best perks of reaching out to us is the cash offer we give you is one you’re under no obligation to take. When we present you with the offer we want you to think about it carefully and only accept if it’s the best choice for you. We truly believe in mutually beneficial situations.

To get started, simply fill out the contact form on our site or give us a call at 781-309-7085. We buy houses and condos all over Massachusetts and are here to help you find the best possible solution based on your situation.

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