Selling your home to pay off debt, fund college


Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Dear Credit Smart,
  Hello. Homes in our area is selling well. We are in a position to get a great profit if we sell our home, even after commissions and estimated fees. I’m thinking of selling to pay off debt. It won’t be all of it, but a significant amount. We have child going to college in 2017 and we’d have to squeeze into an apartment for about six months and then find another home. Should we sell to pay debt? – Sharon


Dear Sharon,
As you can probably guess, I am always in favor of paying off debt. This is especially true for a family that is preparing to send a child to college very soon. Those costs can mount quickly and to be out from under a crushing debt load will certainly be to your advantage. 

You are very lucky to be in a place where the housing market is strong for sellers. This is not true, as you know, for everyone. You might want to keep that in mind if you plan to buy in the same area. Six months may not be long enough to swing the market the other way in favor of the buyer.

In fact, I am wondering what your plans are for future housing, beyond the six months of apartment living you suggest. Are you considering permanently downsizing once your child is away at college? This can also be a smart move if it is appropriate. I ask this because you say that you won’t be able to pay all of your debt, but a “significant amount.” I hope that means that you are planning to preserve some of your earnings for a down payment on a new home or using some of the profit to help pay for college costs. 

If you do decide to sell, it sounds like you will still be in debt to a certain extent. I would encourage you to find a way to eliminate the remaining debt as soon as you possibly can, especially if this is largely credit card or unsecured debt. If you are planning to buy another home, you will want your credit score to be at its best before you start shopping. Remember that your score benefits from having available credit, so don’t close accounts unless you must.

Also, as I said earlier, college costs add up sooner than you may think. I hope you and your child have a plan for paying for college. If not, now is the time to sit down and figure that out. If that plan includes some type of student loan, I encourage you both to carefully investigate all of the options. Student loan debt has reached a crisis level in this country, so please borrow carefully, and only what you must. Don’t forget to have a plan for paying off that debt as well. When it comes to student loans, the less you borrow the better.

Remember to always use your credit smarts!

See related: Gearing up your credit score for a home purchase

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Published: May 21, 2016

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Updated: 10-25-2016

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