Should You Downsize If You're In Debt?
What To Consider Before Making The Leap
You’ve got a mountain of debt, perhaps because you’re simply being too free with your credit cards, or travelling more often than your budget truly allows, or opening your wallet every time the kids need help.
Whatever the reason, debt has a way of mounting up quickly and overcoming people’s ability to pay it off in a timely fashion — without paying enormous interest fees.
That’s the trick with credit cards, in particular; not paying off the balance every month can result in hundreds or even thousands of dollars in interest ratcheting up over months.
Most credit cards charge double digit interest rates these days, so even a small carried balance can mean big payments in interest fees.
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Credit cards are a privilege, but they can be a curse, too, if not used with discretion and caution.
Or perhaps you’ve been supporting one or more of your children while they’re at university.
A noble goal, of course, but it can mean a big dip in your savings account each month.
And while most kids hope to pay their parents back for money borrowed or even given outright, that can take time, until they are established and earning a good income.
A lot of parents try to save something for their children’s education, but that can be tough, particularly if you have more than one child to consider.
Now, you’re carrying a load of debt you hadn’t completely planned on, and you’re considering downsizing to deal with it.
Should you do it?
Let’s look at some of the benefits of selling assets to pay off debt — and some of the drawbacks, too.
Selling your home can bring in a huge cash infusion.
This is particularly true if you’ve owned your home for a long time in a city like Vancouver or Toronto, but it’s also true in smaller centres like Surrey or Oshawa, Ontario.
Real estate is probably the wisest investment — and the biggest — any individual makes in their lifetime.
The equity that accrues over time is what many people count on for their retirement nest egg, to ease the road in addition to pensions.
So deciding to sell solely to get out from under debt is not always smart, especially if you won’t have much to tuck away after debts are paid.
Remember, your home is your biggest asset, so selling it should never be an impulsive or panicked decision.
Study the real estate market in your area, and consult with credit counsellors to see if there is another option.
Downsizing has drawbacks — a lot of them.
No matter where you live, you pay costs, either in mortgage payments, rent, or condo fees.
Even if you own your home outright, you’re still paying property taxes, utilities, upkeep and other expenses.
If you move, chances are you’ll get a big cash infusion (again, depending on your amount of equity) but you’re going to move somewhere that still costs money, perhaps even more than your monthly mortgage payment is now.
Before making the leap, examine the rental market in your area to see what you’ll have to pay for a smaller place — and chances are it is going to be smaller.
Few apartments or condos have the square footage of homes, which is the whole point of downsizing when you get older.
But if you’re still young enough to be working, ask yourself: “Am I ready to commit to a smaller space, a place with no backyard or spare bedroom for visitors?”
If the answer is “no,” you need to rethink downsizing.
If you sell, is it compromising your children’s inheritance?
Many parents have plans to leave their home to their children so they can sell it and have a financial “leg up” in life.
You only get one shot at this, because chances are you won’t sell one home and buy another; the whole point of downsizing is accessing the equity in your house to pay off debt.
Talk to your children about the decision you’re considering, and explain why you want to do it.
Ultimately, it’s your money, and only you can decide which way to go.
But if you’re determined to leave something behind, downsizing may not be the right solution for you.
These are just some of the considerations you should mull over thoroughly before deciding to downsize and use the money to pay off debt.
At Bankruptcy Canada, we explore all options with you, including getting a “pay down debt” loan from a financial institution that allows you to keep your home and pay off debt simultaneously.
Even going bankrupt but keeping your home is a possibility, depending on how long you’ve owned it and how much equity has built up.
All these considerations are examined, and we help you find the one that’s right for your circumstances.
Selling your home is never an easy decision, and doing it because you’re drowning in debt can make you feel like you’ve been forced into a corner.
But many factors come into play, like your age, your income, and your pensions that will one day begin, if they haven’t already.
Let us help you find the solution that makes sense for you, for your family, and for your future.
Information on Consumer Proposals
Consumer Proposals in Canada – An Alternative to Bankruptcy
What is a Consumer Proposal?
What are the Benefits of a Consumer Proposal?
What are the Steps in a Proposal?
What Debts Are Erased in a Consumer Proposal?
Is There Life After a Proposal?
Consumer Proposal Eligibility
How to Amend a Consumer Proposal
How to File for Bankruptcy
What is Bankruptcy?
How Does Bankruptcy Work?
What is the Cost of Bankruptcy in Canada?
How to Rebuild Credit Following Bankruptcy
Personal Bankruptcy in Canada
What Debts are Erased in Bankruptcy?