Selling your home to consolidate debts is usually a worst case scenario and will depend on your specific situation. If you are in debt because you are struggling to repay your mortgage and other expenses, you may want to consider selling your house. However, if you choose to go down this route, there are many factors to take into account.
How Can I Ease My Debts?
If you are struggling to pay off your debts, the first thing you should do is consider your income and your monthly outgoings. Before taking drastic action, you should know exactly what you are spending and where your money is going. Make a spreadsheet or use an app to determine all of the outgoing payments. From that, you can establish what is essential spending and what money is being spend on luxury items. This will be subjective so make sure to be realistic when approaching your finances and spending history. Often, the non-essential spending is far higher than we expect; this is an easy area to cut down on your spending and ease some of your debts. Cutting back costs where possible can help you to get your finances under control and reduce some of your debt.
What Happens If You Cannot Pay Your Mortgage?
If you are unable to repay your mortgage, it can be easy to adopt a passive position and either leave the property and return the keys to your mortgage lender, or leave your mortgage debts unaddressed and wait for your mortgage lender to take court action to evict you; neither of these options are the ideal solution.
If you cannot repay your mortgage, there are many steps you should take before admitting defeat including speaking to your mortgage lender to try and renegotiate a payment plan. As a last resort, if you really cannot repay your mortgage, it is better to try and sell the property yourself rather than leave it in the hands of the mortgage lender. Until the property is sold, you will still be legally responsible for mortgage payments, building insurance and other expenses so it should be your duty to make sure that you are getting the best price possible.
Leaving your property in the hands of the mortgage lender is a bad move, even if you feel that you are in a desperate situation. When the owner is evicted from a property or the property is handed over to the mortgage lender, the property typically sells for far less. This means you are at risk of the property proceeds not covering what you owe in debt.
What to Consider If You Want to Sell Your House to Consolidate Debt?
If you are considering selling your house to consolidate your debt, there are certain things to take into account.
- Finding somewhere to live – if you sell your house, you need to think about where you will live and what you can afford after you have repaid your debt
- Get a valuation – you will need to value your property to see if the selling price is enough to cover mortgage payments and any other existing debts. If you do not get enough money from selling the property to repay your debts, you will need to make up the difference.
- How long it will take to sell – the speed of the sale will impact how much it will cost you as you will still be responsible for the mortgage payments and building insurance until the property is sold
- How much it will cost – selling a property costs money and estate agent fees and legal fees soon add up. Depending on how much debt you have, it might be worth weighing up the costs and seeing if you are really saving money.
- What income will you have left – you need to think about how much money you will have to live on after you have sold your property. Depending on your work situation and how much you get from the sale, it could affect whether or not you can get benefits.