What to Do Before Selling a Home to Pay Off Debt
Q: Over the years, we refinanced our home a few times to pay off our credit cards and other debts, but we never actually got ahead. Now we’re faced with selling our home as we’re having a hard time keep up with our first and second mortgage payments. With the market the way it is, we’re not sure if we’ll break even. What can we do?
A: Deciding whether or not to sell a home is never an easy decision, especially if you’re not sure if it’s the right solution over the long term.
Use a Spending Plan to Start Living Within Your Means
With over a decade of extremely low mortgage rates and fast-rising home values, many homeowners refinanced their mortgages to access the equity in their homes. Unfortunately this can work against you if you aren’t living within your means. Part of resolving your debt crisis needs to include establishing a realistic household budget so that you avoid incurring more debt. A spending plan will not only help ensure that you don’t spend more than you earn, it will help you deal with the debts you already have.
Factor New Costs Into Your Budget
As part of developing a budget, determine what your total housing costs would be if you sell your home and rent elsewhere. It can be difficult to find an affordable rental home in some areas, so do your research before you put your home on the market. If you need to move out of your community, calculate if any of your other expenses will increase as a result (e.g. transportation, car maintenance or insurance).
Find Ways to Increase Income or Decrease Expenses
Next, consider how much money you would save by renting rather than owning. If the amount is very little, it might not be worth it. In addition, if selling your home would still leave you with significant debt to pay, one option may be to use your home to generate additional income (e.g. rent out a room or garage).
Selling a home is costly and can make for a period of uncertainty for your family. Before you take this drastic step, get help to review your whole financial situation.
Get Help to Consider All of Your Options
You may have options available to you that you aren’t aware of, some of which will depend on the outcome of a sale. I would recommend that you speak with an accredited Credit Counsellor at a reputable non-profit organization for an objective review of your circumstances. Once you have more information, you’ll be able to make a decision that eases your stress and worry.
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