Should You Sell Your House To Pay Off Debt?

Financial problems

Being in debt is incredibly stressful, often placing you and your family under immense financial and emotional strain. If you need to urgently pay off credit card debt, payday loans or stop repossession, you could sell your property to release equity and help regain control of your finances.

However, selling your house to pay off debt is not a decision that should be taken lightly. While it may seem like the easiest way to quickly acquire a large sum of money, you need to consider the long-term implications of selling your property.

Our blog post summarises the different kinds of debt and what questions you need to answer to help you decide whether or not you should sell your house to pay off debt.

Understanding your debt

For anyone who is trying to combat their accumulating debt, the key to financial success is to settle the most expensive loans first. To figure out which arrears you should pay back first, you need to understand the different types of debt.

Some types of debt are considered to be good, as they strengthen your credit rating, while other bad types of debt have a negative impact on your financial record. A mortgage is considered to be good debt as a property’s value should increase over time, and any loans taken out with low interest rates tend to be viewed positively.

Bad debt occurs when you use financing to purchase something that will decrease in value over time, such as payday loans and credit cards. When considering whether or not to sell your house to clear debt, you should look at how paying off the debt will impact your financial future – if it’s  primarily positive, you may be able to clear it over time without selling your home.

Should you sell your home to pay off debt?

Selling property to release equity won’t work for every person who is struggling with debt. Selling your house to pay off debt only works if your home is worth more than the amount you owe.

You can figure out how much your home is worth by subtracting your remaining mortgage balance from the property’s market value. For example, if you owe £160,000 for the mortgage on your home and it’s worth £280,000, selling it would leave you with £120,000 in equity.

If the market value of your property falls below the outstanding mortgage amount, you’ll be in negative equity. Very few homeowners realise that their property value has fallen into negative equity until a solicitor values their home. If your property’s value has fallen below your mortgage balance, you’ll need to wait until the property market improves before selling, or risk owing money to the bank.

Some of the other things you need to think about when deciding whether to sell your house to get out of debt include:

  • How much will it cost to sell your home? Selling a property is an expensive process, with estate agent commission, solicitor fees, conveyancing costs, repairs and maintenance all taking a massive chunk out of the equity you’ll receive once the sale completes. Can you afford to pay these fees, even if the house sale falls through? And will you still make enough profit on your property to pay off your debt?
  • Are your financial troubles short or long-term? Is your shortage of money caused by a sudden change in circumstance, or are you in long-term debt? If you are in long-term debt, is it because you have difficulty managing money? Selling your property is the wrong decision if you’re not 100% sure that it will keep you out of debt.
  • How much do you owe, and to who? Is there a way to restructure your debt repayments to avoid having to sell your biggest asset? For example, could your lender implement a lower interest rate, or authorise an Individual Voluntary Agreement?
  • How important is it for you to stay on the property ladder? For most people, their home is their biggest investment. If you sell your house to clear your debt, you may find yourself unable to buy another property in the future. How will this affect your long-term finances? Would you depend on the sale of your home to fund your retirement in later life?
  • How long will it take to sell? What is the property market like in your local area? Is your home in a sellable condition? While you may need to release equity quickly to pay off debt, selling a property is a time-consuming process and there’s no guarantee that your home will sell.

If you need to sell your house to get out of debt, it may be worth considering selling your property to a quick house sale company like Good Move. Good Move buy any house, regardless of its condition, for up to 85% of the market value. Sales can be completed in as little as ten days, and there are no seller fees or property chains.

If you’d like to sell your home quickly, contact our experienced professionals at Good Move today.

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