sell, rent, rid the debt?
Question: I need some advice. Here is my situation:
I have a $150,000, 6.8% mortgage. I live in a nice condo that is appreciating fast. I could sell it fairly quickly.
I have gotten into serious trouble with nine credit cards and currently negotiating to have the balances reduced some and pay less interest. A couple of them have been charged off. My credit rating has become extremely poor. I also have a large personal loan and a car loan. I hate having all this debt. I am barely making ends meet, but I am surviving. I had to defer my student loan and temporarily discontinue my 401K.
I could sell my condominium and use the profit to pay off about half of all this debt. I would then rent for about the same amount as my current mortgage payment and condo fee and start rebuilding my credit. Then, buy again in a couple of years. I was planning on selling in 2 or 3 years anyway. Also I have a renter that pays me $500 a month. What is your opinion on this? Any help would be appreciated?
Answer: If there was a very high probability that you’d never again carry debt (besides a mortgage and perhaps some for a car), I’d suggest selling in this “hot” market and paying off all that high interest debt. (For most, it does make more sense to pay off credit card and other high interest debt before paying into an IRA.)
However, if you do all that and simply go back into hock, you’ll be in even worse shape (typical of many).
Reminds me of a college room mate who started smoking at age 20, to “lose weight”. It worked for about 6 months, then he gained all the weight back (plus some), but maintained the smoking habit. It’s hard to give advice without the specifics because the best solution depends on the amount of cash involved.
At first blush I’d say that if your net proceeds will only eliminate 1/2 of your debt then I’d say not to do it. As someone else mentioned, you will lose your write-off and will likely end up in worse shape.
Have you explored a home equity loan? Doing that will let you write off more interest expense while paying a lower rate.
Do you belong to a credit union? If not, join one. They tend to be much more relaxed with their underwriting policies. Perhaps you can arrange a debt consolidation loan.
Finally, if you’re not upside down on your car, perhaps you should consider selling it and getting something cheaper.
Without specifics, it’s really easy to think that you’ve been living well beyond your means. So the first thing you must do is stop spending!
I think you will seriously regret selling. Hell, get a second job if you have to.
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