Is Selling a Home to Pay Off Debt a Good Idea?

A lot of our clients who accumulate credit card debts and other debts they can’t afford to pay back wonder if they should sell their assets to meet their creditors’ demands.

Dealing with overwhelming debts can make it hard for homeowners to face mortgage payment, which is why many wonder if selling their home to pay off debt is a good idea.

If you are facing debts you can’t cover, you need to evaluate whether selling a home is going to be the right solution that provides debt relief in the long term.

Does it eliminate living costs?

It is the first question you need to ask yourself.

Selling a home may provide funds to repay some of what you owe or all of it.

However, you may still have costs that could be greater than mortgage repayment to replace your accommodation.

In other words, you have to consider the charges that will follow the debt repayment, whether it is partial or total.

If selling your home doesn’t let you repay the full debt, you may still struggle to meet further payment deadlines, especially if you consider the costs of arranging for new accommodation.

Refinance your mortgage

Refinancing your mortgage is a popular option for homeowners who want to cut down repayment costs.

You can also access home equity which can help repay some of your debts.

However, you should bear in mind that mortgage refinancing, to be financially sustainable as a debt relief approach, needs to provide an interest rate reduction of at least 2%.

Nevertheless, if you struggle to live within your means, you will face difficulties tackling new mortgage repayments.

A realistic household budget that lets manage your money without accumulating further debts, such as our 6 money management tips, is an essential prerequisite for successful refinancing.

Maximize the + and decrease the –

Comparison plans can help you figure out the best financial solution for you.

You can compare options that increase your income and reduce your expenses to define how your home fits into your debt management strategy.

For instance, these could be some of the options to consider:

 

  • Is renting cheaper than owning a home?
  • How much could you earn if you were to rent out a room or the garage, for instance?

 

Run a hypothetical budget: What if I sold the home?

Factoring home-related costs into your budget can help you understand whether a sale would affect your budget.

Factors such as the cost of rentals in your local areas, or the cost of relocation can play a significant role in the final calculations.

Additionally, you also need to take into account costs such as commuting, car insurance, and even the cost of the real estate agency if you proceed with a sale.

I don’t know how to pay off my debt

BankruptcyCanada.com trustees can help you assess your financial situation.

A licensed insolvency trustee can provide support with debt relief options that help you pay off your debts, such as a consumer proposal.

A debt settlement and a credit counselling debt management program can help reach out to your creditors and negotiate a payment plan, even though those are not legally binding.

When debt is getting out of control, you may be tempted to sell your home to pay it off. But before carrying on with your plan, reach out to a trustee (877) 879-4770 to figure out if you can save your home.

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