Is selling your house to pay down debt a good idea?

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
I am in big DEBT! I need to know what to do in my situation. We purchased our first home 19 months ago, but now we're having trouble keeping up the payments. We are making late payments for the mortgage and most of our credit cards. We have debt of around $75,000 in credit cards, plus the mortgage on the house, which is $170,000. I called all the creditors and some of them gave us a payment plan, but I do not know what interest rate we got. My credit is only fair now after all my delinquent accounts, and my husband's credit is about the same.

We have a moderate income, but it is not enough. Sometimes we can't buy food. We are really struggling hard. My job is just part-time, so my husband's income is the only one that comes in weekly. We do not have any savings, just a checking account to pay all the bills.

What should we do? Should we sell the house? -- Juanita

Answer for the expert

Dear Juanita,
You're in a tough spot with all those bills, especially if only one of you has a steady income. You need to make major changes now to take control of the situation.

Selling your house to pay bills is not usually a good idea, but with your high credit card debt, you might be one of the exceptions. You must take drastic action soon before that $75,000 debt grows any bigger. Before you call a real estate agent or put a sign in the yard, however, consider the following:

  • Will you get enough cash out of the house to pay off all or most of your debts? Unless you have significant equity in your home, you could find yourself after the sale with no extra money after the real estate commissions and other expenses are paid -- and now you don't have your house.
  • Can you find a cheaper place to live? Your mortgage payment, including property taxes and homeowner's insurance, is probably about $1,400 per month. If you can find a place to live for significantly less, say $900 or less, selling your house may be worth it. Otherwise, your problem of having more bills than money will be the same as before.
  • If you really want to keep your house, think of other ways you can pay down your debt. For instance, can you find a job that pays better or that is full time? Can you or your husband take a second job temporarily? Can you sell a car or other assets?

A friend of mine sold his house when he was laid off a couple of years ago. They hated to lose the house, but fortunately they sold it before their situation became too desperate, and they were able to get a fair price for it. He says that selling the house was the only way they could pay the bills and keep their kids in private schools. Now, he has a new job and they are getting back on track. In fact, the current real estate slowdown made it easier for them to get a "rent-to-own" deal on a brand new house.

For many people, their home is their best investment. It's certainly the investment we get the most enjoyment from. If you like your house, don't part with it easily. If you decide to sell it now, however, don't give up on the dream of owning your own home. You and your husband can pay down that debt and find a way to have a home again soon.

Take care of your credit!

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Updated: 11-24-2017