Selling your home is never an easy decision, and that’s assuming you’ll end up with most of the money from the sale. If you want to do it in order to secure funds to pay a debt, the situation becomes much more complex. So, let’s take a look at the pros and cons of selling your home to pay off debt.
Pro: It can be a great way to assure a fresh start
The first advantage of selling your home to pay off debt is that it’s an excellent opportunity to start fresh. After all, once your debt is paid off and your home is sold, you no longer have anything tying you down to the area. You can freely choose to move to a more welcoming neighbourhood. Or just look for a much cheaper city with more abundant employment opportunities. People often don’t realize how much the security of owning your own home bogs them down. But, if you’re already going through a rough time and maybe even partly looking to sell your house after a divorce to get rid of unpleasant memories, then you may as well make the best of it!
Pro: You can use the chance to downsize
Selling your home to pay off debt doesn’t have to be a bad thing, either. You can use the opportunity to downsize if your current home no longer fits your needs. This is particularly common for parents whose children have already moved out. Especially if they still need to worry about a mortgage! Moving past a long-term drain on your budget by paying it off immediately is an extremely pleasant feeling. And, chances are, you’d still have enough funds for a smaller home in this scenario.
Pro: It’s a great option if you’re struggling with the home
Selling a home that requires significant work is challenging but hardly impossible. The chances you’ll sell it for enough money to pay off your debt are pretty solid. And, while people typically view the sale of their home as giving up on stability, consider this: a home that needs frequent maintenance and repairs is as much a drain on your resources as debt repayment. If you need to spend thousands of dollars to keep up the illusion that your home’s a comfy place to live every year, why not give up on it? Sure, you probably won’t have enough funds to buy a new home after the sale. Still, you may have been paying enough for the repairs that are switching over, so spending that money on rent won’t be a step-down.
Pro: Paying off debt can open up new opportunities
The final reason selling your home to pay off debt is good is because it opens up opportunities. We mentioned already that debt could tie you down. However, it also seriously limits your options when pursuing your dreams. It heavily limits the funds you can draw on every month, which can entirely stop you from being able to get into investment or proper budgeting. Sure, rent is a drain on your budget, too. But it’s typically much cheaper and does not come with the costs of homeownership attached. You’ll also have enough money left over to let you finance your move. Such as, when doing a long-distance move in California and hiring movers, you can let experts handle it.
Con: It can be hard to buy a home again
Of course, selling your home to pay off debt is not all rosy. And the first drawback is the difficulty of purchasing a home again. Buying a home is a major investment, and people must make long-term plans. This means you might just get into a new debt trying to rectify your new living situation. Since your goal isn’t just to exchange one debt for another, you’d likely settle on renting. And even if it’s a smaller drain on your resources, rent is still a highly wasteful use of your resources.
Con: You may not earn as much money as you hope
The second reason selling your home to pay back debt is risky is that you can’t guarantee its selling price. Home prices fluctuate, depending on the ‘competition’ you’d be facing. For example, selling an older home in a neighborhood with many renovations is rough. And you don’t want to end up spending the entire value of your home to pay off debt and fall short. That way lies potential homelessness and a ton of financial trouble you’d have to dig yourself out of.
Con: Unless you can completely pay off your debts, it’s a stop-gap measure
What we just said about failing to pay off your debt with your home sale is not the only thing to worry about. Failing to cover your debt’s total value with your home sale means the debt is immense. As such, your bankruptcy is pretty much a certainty at that point. Instead of weakening your position by selling your home and facing homelessness in the midst of bankruptcy, it’s better to consider alternatives. Refinancing a loan, looking into debt relief, or pursuing other options is far preferable to a home sale. They are solutions that would actually get you out of financial trouble instead of just making things worse.
Con: You have no guarantees you can sell your home quickly
The final argument against selling your home to pay off debt is that you don’t know how long the sale will take. Even if you work with home sales professionals, it could take a while if your home is not competitive enough. And, if you’re looking into a home sale as a solution, chances are you need money quickly. This means you might end up paying for fees, inspections, and similar that a sale requires. Only to then find out that you’d wasted money instead of getting a guaranteed payout of the sale, and the date of your next debt payment has arrived.
Carefully think about whether selling your home to pay off debt is the right move
Knowing the pros and cons of selling your home to pay off debt lets you weigh your options properly. If there are any alternatives, you’d likely be better off taking them. Unless, of course, you are still in a strong financial situation, and a home sale is what you want anyway.