Does it make sense to sell our house to get out of debt?
Date: Thu, 12/06/2007 - 11:28
A few years ago we took out a home equity line of credit, which we tapped into for some home improvements as well as to consolidate credit debt. The line of credit was also used as overdraft protection for our checking account, which was a big mistake. Essentially, our line of credit ended up being a seemingly bottomless ATM machine.
Today our line of credit is maxed out at $106,000 with a monthly payment of $800. The balance on our mortgage is $236,700 with a monthly payment of $1700. Other debts include a MC with a balance of $20,000; three cars loans with balances of $23,000 (payoff Oct. 2011), $6,800 (payoff May 2011), and $2,000 (payoff in June 2008); a line of credit balance of $7,400; and a couple of department store credit cards with a combined balance of $2,000.
We have two children, ages 15 and 10, for whom we intend to fund college. While we have been investing in a 529 savings plan, we know we are not setting aside nearly enough to meet future financial obligations. Same is true for our retirement savings. Personal savings is nil.
My feeling is that we are so far in over our heads that it would be prudent to sell our biggest asset – our house – and use the proceeds to get out of debt. We could rent a comparable house in the same area for about $1,500 a month. In today’s real estate market, our house should sell for about $420,000, which would result in a profit of $77,300 after paying off the mortgage and home equity line of credit. Less a 6% realty commission and capital gains taxes, I believe we would be left with about $37,000, which could be used to knock out all of our outstanding credit debt except for the car loans. We would then sell our third car that has a balance of $6,800,resulting in our only debt being one car loan.
At this point, I feel that we would be in a position to be able to put aside significant savings for our children’s college fund, a future house down payment, our retirement, and an emergency fund.
Does this make any sense at all or am I missing something?
I suppose the tax write offs you'll lose by selling the house ar
I suppose the tax write offs you'll lose by selling the house are small compared to your debt payments.
Welcome hooville...your story is a common one. It happens and yo
Welcome hooville...your story is a common one. It happens and you find yourself having to liquidate a significant asset..your home.
In this market, if you can indeed sell it, I would say do it.
Before selling your prized asset, contact a debt settlement comp
Before selling your prized asset, contact a debt settlement company who can provide you estimates on your total amount out of pocket expense per account. All companies will give a standard response of "we settle clients accounts for usually 45 cents on the dollar". This is not the response you are looking for. You want specific numbers and time frames of when the accounts will be settled. Your card with a balance of 20k may be able to settle for less than 5k in only a few months but it depends on the creditor. I would imagine your payment would be close to $600.00 per month. In a few months, you could free up $600.00 to put toward paying down other debts.
HELOC's are also becoming negotiable. It may be in your best interest to research a little more into what companies can do what to help you before throwing away your home.
A house is an investment in your lives and it is a useful tool w
A house is an investment in your lives and it is a useful tool when you need it. If you decided to sell and pay off all of your debt thats good. Being debt free is a good thing but it's only going to work if you are planning on staying debt free.
I talk to many people in the course of a week who sold a home or used their equity to pay off debt and turned around and got themselves into debt again.
If you are going to make a lifestyle change then you are going to need to follow through with it for a long long time. Start teaching your children about credit as well so that way they can learn from mistakes you made so they will be aware of the ramifications of credit.
If you are ready for these changes then I think you should sell. Maybe in a few years down the line when the housing market is a lot more stable you will be ready to buy a home again and beyond a car hopefully that will be the only debt you have.
I agree with above guest by all means keep your house your only
I agree with above guest by all means keep your house your only true asset and do a settlement on the credit cards you owe on
Welcome to the community :D Fyi is right- unless you can commit
Welcome to the community :D Fyi is right- unless you can commit to lifestyle changes-selling you home won't work.
We had to make some drastice lifestlye changes years ago- stuck to it, and am glad now.
You have a great plan of action if you do decide to sell- getting out of debt. saving, etc. At the point you are ready for a new home-later down the line you will be prepared.
The biggest mistake I made was not teaching my children more about money-they are grown now- one super responsible, one really not :lol:
Good luck to you and keep us posted on your progress..Karen
I find it typical in todays economy that we are suggesting that
I find it typical in todays economy that we are suggesting that this person keep the house "the only true asset" when they dont own it and will owe at least three times that amount in the end. with that kind of income per year I would think they could save $50,000.00 per year and be frugal in spending as it should be.
guest, this comment is incorrect about settlement: You want s
guest, this comment is incorrect about settlement:
You want specific numbers and time frames of when the accounts will be settled.
No settlement company can promise anyone this. and second of all settlement will not help with his lines of credit that have leins like on his home or car payments it only works with unsecure debt.