I’m gonna keep this short. My wife and I own a home that we owe 245k on the interest rate is just over 5% and our mortgage is 2k/month.
We also have about 86k total in debt. 22k in credit card, 36k in 2 car loans, 8k for HVAC we replaced, 20k in student loans and 5-6k in hospitals bills after our sons birth.
We make just short of 70k/ year combined. I know the credit card debt is what’s holding us back at 28% APR. My initial thought is to sell our home to allow us some breathing room.
Currently can’t save money but up to date on all bills and debt. Is it worth selling and potentially moving to an apartment that’s $400-$600 cheaper per month?
Should my wife and I sell our home to satisfy hefty debt?
byu/Ok_Marketing_2416 inpersonalfinance
Posted by Ok_Marketing_2416
29 Comments
what about getting a HELOC to pay off the credit card debt so you can pay the HELOC with a much lower interest rate?
Do you have a written budget?
Have you formulated a more comprehensive financial plan for getting out of debt?
One of the most serious risks of a plan like yours is that with access to more cash/credit/loans, it just ends up leading to *more spending*.
The home sale acts more like a band aid. It allows for continued spending. And the net result is a situation where you still have the same (or more) debt, but now you have no home to sell.
* https://www.reddit.com/r/personalfinance/wiki/budgeting/
Probably. You don’t have the breathing room to save for the inevitable home maintenance (see HVAC debt). You aren’t willing to compromise on your transportation (see 1/2 your income in car debt!). The student loans are a sunk cost and the kid isn’t going to get any less expensive over time. You are likely overspending by more than that $400-600 a month based on your CC debt. If you can get closer to a balanced monthly budget by reducing your housing costs by $600 a month/$7,200 a year and eliminate the ticking time bomb of differed home maintenance you can give yourself the breathing room to actually save… if you choose to. The trick is actually forcing yourself to save and live within your means.
How much do you think your house would sell for?
How long have you owned the house? Selling a house is an expensive process, so you’d have to be sure you could break even.
You need to stop the bleeding. You’re living beyond your means. You need to either decrease your standard of living or make more money. Do you have a written budget?
Moving is a possible bandaid, not a solution. You need to solve the problem.
May I ask- how did you wind up with $22k credit card debt?
credit cards drain way more faster than the mortgage. I’d tackle that first or check equity options before selling. stability matters too mate.
I find it amazing people would consider selling their home before selling their car
Not until you have explored every option and cut out every expense. Where would you live? Can you sell a car? Make a budget, get a second job, but to sell a home to clear debt is drastic.
You make a valid point that getting out of the house could free up around $500 per month. However that is only one part of the whole equation. The $500 a month isn’t going to fix things by itself. You need to institute strong financial discipline and make some other serious decisions to climb out of the debt hole. For example:
Can you get into 1 or 2 cheaper cars? That has risks but could help free up cash to pay toward your debts.
You need to build a cash emergency fund. That will help reduce the need to buy more debt via credit card.
Consider taking on any kind of part time job in order to bring in some cash to pay off your debts. That will be painful, but so is $86,000 in debt.
Cut your weekly living costs: food, gas, clothing, expensive internet service, anywhere you can cut. Divert that money to the debt.
Yes, consider selling the house.
Once you’re done with the debt, then you can start a new focus on building a strong financial future, and you’ll have a new appreciation for the problems with debt. Then you can enjoy your $70K a year while saving for the future and being glad the debt is no longer crushing you.
Have you called your credit card company? We had an interest rate like yours and every payment I made was going to interest so it felt like I was never climbing out. I called and spoke with someone there and got put on a payment plan with a 3.5% rate.
Also, I’d sell a car and get a second job before selling your home and losing that equitable asset.
You need to earn some more cash and cut expenses. Where are you going to find housing cheaper than $2k a month?
Is there any way for you to make more money? Get a new job higher paying job or a second job? I know the job market is bad now, but you’re in so deep that a combined 70k salary won’t be able to make a dent. Selling the house wouldn’t be enough.
You guys make $70k combined and you got approved for a $200k+ home loan? That’s straight up predatory. You guys are living way above your means, like it’s not even close.
Sell your cars and buy cheap ones.
Work on increasing your income.
Start living on rice and beans until you can get your debt under control.
I think you need to get a part time job on the weekends and/or in the evenings and use all of that income to pay down the credit card debt. You also need to look into consolidating your student loans, see if you can do a balance transfer to 0% APR cards (idk what your credit situation is like), and you need to really live like a spartan- no extras. There are free streaming services- you can cancel all the paid ones, eat at home, etc. Selling the house would be the last thing I’d do unless I just had no other options. Do you even have any equity in it? As far as your cars go, are you upside down in them? Is it possible for you all to sell one and share a car?
How do you make 70k a year combined and have 36k owed on 2 car loans, you need a budget and honestly a change of profession for the both of you and then slowly and efficiently pay off high interest debts
I wouldn’t sell the house. In 5, maybe 10 years your rent will likely be higher than your mortgage after you factor in annual rent increases. Not to mention you will have no equity to show for it.
I’d sell the cars and buy something much cheaper. Selling an appreciating house locked in at a reasonable rate just to pay for depreciating assets doesn’t make sense. Also, if you could increase your income (OT, part-time, side hustle) some until at least you get your credit cards paid off that would greatly help.
What’s your budget? Net monthly income and expenses. Have you looked into balance transfers for your credit card debt? How much do you owe on each car? Are the student loans federal or private? Have you approached the hospital about a payment plan?
From what I see here, I wouldn’t sell the house. A couple of things: obviously you are looking for work, and when you are earning income this whole picture will look different. I think you’d regret eating the cost of selling your house for a $400-$600 difference, which will not mean much in the long run when your income changes.
Look into charity care (if they still call it that) at the hospital where your child was born. I was in graduate school when my first was born, and we applied through the hospital’s financial assistance program and surprisingly all of the bill after insurance was covered. Some places make it a pain to submit the application (they will want tax returns, bank statements, etc.) but what I learned during that process is that this is underutilized in a lot of nonprofit health systems.
Also see if your mortgage lender has any options for refinancing your student loan at a lower rate. When I bought a house, I went with a lender who not only had a good rate (also peak Covid era) but also had a program to refinance student loans at a 1.25% APR. Not sure how common that is though.
Like others are saying, the “debt snowball” idea would be applicable here. Focus on the CC debt. Lock down your budget. But having a house and not relying on landlords/rental companies with a kid is a big deal.
This should be your absolute last resort. Things to try first:
Apply for a 0% balance transfer card and transfer as much of the CC debt as you can over to that. That should give you a year or so where your 28% balance is lower and you can start knocking it down a bit.
Talk to a couple local credit unions about a debt consolidation loan. Even if you got 15% which is normally terrible it would be a huge benefit to you.
Pick up a side gig. Drive uber or whatever.
Sell one of the cars and make do with one or buy a beater.
Can you balance transfer the credit cards to a card with $0% interest for a set time? That is how my mom got out of credit card debt. I think you pay like 5% each balance transfer, and when the 12 or 18 months 0 interest runs out, transfer again. I would be picking up a side hustle if possible and eliminating take out etc before i would sell my house. 5% is better than the current going rate, and your home will appreciate and be worth more than you paid. Your rent will just go up every year, your mortgage likely will not. It seems like an “easy fix” but in reality i think you would regret it immensely.
It’s not just the credit cards. It’s everything.
If the number you gave for income is your gross, then your mortgage payment is probably around 40 percent of your monthly take home.That makes life really hard. Also, the cars are too much.
The two of you need to try to make more money . Make a budget so you can track things. Selling the house would help, but it may take longer, and you will get less than you expect due to changing markets.
The big thing is making changes to your mindset set. Is the thing you want to buy/do worth the space in your brain it will occupy when it becomes a debt to be paid. For us, most of the time, the answer was no, it wasn’t.
How much equity do you have in the home? A HELOC to get out of the cc debt would significantly help your monthly without having to lose the house. Beyond that you need to rework your budget to get out of the hole. That may be reducing non-home expenses, working additional shifts/2nd job, selling one car, some combination of those, etc.
Go to the reputable credit card counseling company or direct to the credit card companies, ask if you can get a lower rate.
28% APR! Can you get a home equity loan? Those are running 8%.
Considering that you have $22k in credit card debt, selling the home isn’t going to solve your problem. You have a spending problem clearly that needs to be fixed.
Also, 2 people working should be making more than $70k. That’s very low, especially for someone with $86k in debt. It might be easier to find a higher paying job instead of cutting back on expenses depending on your situation.
My advice:
-sell the house and rent something smaller/cheaper in the short term to focus on paying off debt
-sell the cars if you can and get a much cheaper vehicle and pay in cash if possible
-understand your income isn’t enough to fix your situation and do something to increase it, switch jobs/aim for a promotion/get more certifications.
-focus on the paying off the highest interest debt first (credit card)
-in the short term, cut back on spending to the best of your abilities. It will take a long time to fix this situation and there will likely be future setbacks so it’s best you start ASAP
Too much missing info, but probably not. If you and/or your wife can negotiate a raise or job hop or start a side hustle for even an extra $3.50 an hour combined you would exceed the cash flow freed up by the cheaper rent (which will not stay cheaper forever). A lot of your equity would probably be eaten up by seller’s fees.
Since you’re up to date on bills, I’d try and see if you can move the credit card debt around – e.g. a personal loan from a credit union, or a 0% APR card, or something of that nature. See if you can get a pause or reduction on the student loans for hardship. Work out a payment plan with the hospital.
Your first step is to get on a budget and stop the bleeding. This first step is key, you can’t be in the red each month and get anywhere. Then if you’re not underwater on the cars sell them and then buy something much cheaper. 36k in car debt when you only make 70k a year is nuts. Update your I-9 if you haven’t already to factor the child tax credit into your withholding. Pay the hospital the absolute minimum since that is zero interest, just enough to keep them from sending your account to collections like $30 or $50 a month. They’ll threaten you but there are protections for you if your account stays current/active use a check. Next step if you have decent credit is to take out a personal loan to refinance your credit card debt. I was able to refinance 32k in credit card debt that was at 24% interest down to 12% interest with SoFi, I’m now paying the same amount as I was before but the balance is actually going down. Be sure you choose a loan with no fee upfront for a reduced interest rate, that will prevent you from refinancing it with better terms when rates decrease and your score increases. The debt to income won’t be as big of an issue if you’re just changing debt instead of adding to it. Then cut up your credit cards and never use those accounts until your personal loan is paid off. If you stack CC debt on top of your personal loan you’re completely hosed.
If your credit isn’t good enough look into declaring bankruptcy, you can keep your house and get rid of all that high interest debt that is keeping you underwater settled.
If you don’t like your house and you have a good chunk of equity sell it and go back to renting, nothing wrong with that option if it’s more affordable.