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

Debt Payoff

We all know how easy it is to suddenly be in overwhelming debt. Suddenly you find yourself in thousands of dollars of credit card debt. With high interest rates, the debt just continues to grow, and you have no idea how you are going 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. I’m sure this sounds pretty drastic, however, if you are out of options, selling your home to pay off your debt just might be the solution. 

You may want to sell your home and rent for a while as you gain a better financial ground. After all, real estate values don’t always go up, however, 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. 

When Selling Does Make 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. 

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. 

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