“The second vice is lying, the first is running in debt.” – Benjamin Franklin
For most people in America, debt is a fact of life. In fact, American consumer debt topped $4 trillion – the highest amount ever recorded by the Federal Reserve – at the end of February 2019. This debt takes many forms: student loans, car loans, credit card debt, mortgages, and personal loans. These are just a few of the debts that most Americans face each month.
Some of this debt is considered “good debt”. For example, most experts agree that student loan debt and a mortgage can be considered good debt, because higher education typically leads to higher earnings, and homes tend to appreciate over time, making for a good investment. However, “bad debt” is just the opposite. A car loan is considered bad debt because cars go down in value over time, and credit card debt may be the worst type of “bad debt” because of the high interest rates charged every month.
You may be asking: “What does debt have to do with selling my house”? For people who are facing mounting debt, the answer is: “A lot”! In fact, selling your home could be the right financial move if you have a lot of debt. In today’s post, we’ll explore when it makes sense to sell your house to pay off debt.
Why Should You Sell Your House to Pay off Debt?
Most debt experts agree that you should focus on paying off debt with the highest interest rate first. This sounds easy enough, but the hard part is finding extra money to pay more than the minimum payment each month. As we mentioned above, homes are a good investment and typically increase in value over time. Therefore, your house or rental property may have enough equity (home value less the amount owed on property) that can be used to pay down a large chunk of your debt. Let’s look at the situations where this may make sense:
- Your House is Worth More than You Owe. As we just mentioned, if you have equity in your property (i.e., your home is worth more than you owe on it), you could sell it and use the gains to pay off debt. Obviously selling your house to pay off debt won’t work if you owe more on your house than it’s worth. So if you recently purchased your house or have taken out numerous loans using your home as collateral, selling your house to pay off debt may not be the right choice for you.
- Your House Payment is Causing You to be in Debt. Advice varies, but many experts advise that you spend no more than 25% – 30% of your monthly take home pay on your mortgage payment. If you are paying more than this, it may be preventing you from paying down other, more costly sources of debt such as student loans or credit card debt. If your home has equity and you’re paying more than 25% – 30% of your take home pay on monthly mortgage payments, you could consider downsizing to a smaller home or apartment until you get your debt under control.
- You are in (or about to enter) foreclosure. This scenario is slightly different than #2. If you are unable to keep up with your monthly mortgage payments and are entering foreclosure, you may want to consider selling your house immediately. The reason for this is that foreclosure can significantly affect your credit score and ability to borrow for many years into the future. That said, you should do your best to avoid foreclosure, and one way to do so is to sell your home.
How to Sell Your House Fast to Pay Off Debt
There are several ways to sell your house to pay off debt. The first one is a short sale. Short sales tend to happen when a homeowner cannot keep up with the monthly payments on their mortgage and the bank is considering foreclosure. In a short sale, the bank gives the homeowner permission to sell the property for less than the amount that is owed. The benefit to the bank is that they don’t have to go through a lengthy, expensive foreclosure process. As a homeowner, this method allows you to sell your house without damaging your credit score and future ability to borrow.
Short sales are not as common today as they were 10 years ago because the economy is strong and home values have been steadily rising. This means that most homeowners may have some equity in their properties. If you have equity in your home and want to sell your house to pay off debt, you could consider selling your property to a real estate investor.
Selling your house to a real estate investor provides homeowners with a number of significant advantages. To name a few, they can often:
- Provide you with a cash offer within 24 – 48 hours of seeing your home
- Close within 2 weeks (and sometimes sooner)!
- Buy your house in “as-is” condition
- Prepare all of the necessary paperwork and pay all closing costs
If you own a property in Pittsburgh and need to sell your house fast to pay off debt, contact McIntosh Management, LP! We are a locally owned and operated real estate investment business, and we work with homeowners who need to sell their properties to pay off debt. Fill out our form below to get started on receiving a free, no-obligation offer on your property. Someone will be in touch with you within 24 hours.