Sell House To Pay Off Debts: Pros And Cons

by | Sep 26, 2023

Some time ago, you bought your dream home. Maybe this is your first home that sets you on the path to the American dream. Maybe it’s not your first home, but it’s the biggest financial decision you’ve ever made.

Somewhere along the way, you realize your dream home is becoming a nightmare. You’re drowning in debt, and your mortgage signifies most of your budget. Working to pay off debt can seem like an endless cycle. From a purely financial standpoint, selling your house to pay off debt sounds like a no-brainer. 

The extra cash in your pocket lets you pay off debt and restart on firm footing.

Here’s the thing.

Selling your house to pay off debt isn’t just a financial decision. Emotions play a big part in deciding whether to let a home go.

We will discuss the financial and emotional factors that play into this decision.

Reasons To Sell House To Pay Off Debt

If you’ve asked, “Should I sell my house to pay off debt?” Know that you’re not alone. More people than you think have overstretched themselves financially to accomplish their dream of becoming a homeowner.

  • In 2019, Charles Schwab found that 59% of Americans are one missed paycheck away from homelessness. 
  • Only 26.4% of homeowners under age 65 have their homes fully paid off.
  • The average American debt (per U.S. adult) is $58,604.
  • In April 2023, sixty-one percent of U.S. adults said recent price increases have caused financial hardship for their households.

These stats show that many homeowners are finding creative ways to pay off debt and reduce financial hardship. Let’s analyze a few reasons why you SHOULD sell your house to pay off debts.

Your Mortgage Is Too Big

Let’s start with the obvious. If you have too much month at the end of the money, you should look at your biggest expense. For most homeowners, that’s their mortgage. 

Let’s look at the general rules you should follow when purchasing a home:

  • The ideal mortgage should be no more than three times your annual salary.
  • Your mortgage should also be no more than 28% of your gross monthly income, although some borrowers go as high as 43%.
  • Lenders prefer a debt-to-income ratio that is between 28% and 36%. They’ll look for debt like alimony, child support, car payments, and other loans.
  • An ideal down payment for a home is around 20%.

If you’re facing financial hardships, it’s possible that your mortgage takes up more and more of your gross monthly income. Maybe debt from schooling or a vehicle increases your debt-to-income ratio.

A mistake many homeowners make is maxing out their mortgage, thinking they’re still making a financially smart decision. If the 8.3% inflation rate in 2022 has shown us anything, the value of your dollar one year won’t be the same in the next.

The higher your mortgage, the higher the interest on your loan.

More tax increases can see your mortgage tip past acceptable amounts as property taxes increase.

Refinancing Isn’t An Option

Refinancing your home may be an option if you’re struggling with your mortgage. Refinancing is changing the interest rate and/or terms of your mortgage. Basically, you’re trading your old mortgage for a new one with a different interest rate and a new principal.

There are a few scenarios where your financial situation may disqualify you from refinancing your home.

  • Poor Credit: Your credit score, ranging from 350 to 800, measures how well you can repay a loan. The minimum credit score to refinance a conventional mortgage is 620.
  • The Home Value Decreased: If your home’s value decreased, you may owe more on your loan than your property is worth. If the property value is too low, your lender may deny your refinance request.
  • You’re Cash Poor: When you refinance your home, you need cash for closing costs and fees. Some lenders will roll these costs into your loan, but don’t rely on this option. 
  • Failed Appraisal: Professional appraisals serve to guess your home’s value and determine its condition for a legal sale. Your house can fail appraisal if there are structural issues, earth-to-wood contact, plumbing issues, or you made unpermitted renovations. 
  • Your Income Changes: Your lender will consider your current income and employment. Risks include new jobs, volatile industries, wage drops, and frequent job changes. 
  • Payment History: If you’ve missed payments in the past and your mortgage has slipped into default, your lender may be reluctant to offer a refinance.

You’re Facing Foreclosure

If you’re facing foreclosure due to defaulting on your mortgage, selling your home is an option. If you choose this option, notify your lender that you intend to sell your home and use the proceeds to pay off your debt. They may choose to delay the foreclosure auction until you find a buyer. You may also qualify for a short sale if your house is worth less than the mortgage and you face financial hardship.

You Expect A Lower Cost Of Living

One reason to sell your house to pay off debts is the scenario where you have a lower cost of living. A scenario: California said goodbye to 700,000 more people than it welcomed between 2020 and 2022. Many of those people moved to cheaper states. 

Consider moving in with family like your parents, in-laws, or siblings.

Yes, we get it. 

There’s no way I’m moving in with my in-laws! I love my sister, but I couldn’t bear 24 hours/day with her!

If that’s the case for you, this option may not be for you. However, if you can comfortably live with family for 1-2 years, you can set your family up financially for years to come. The main goal of selling your house is to pay off debts. However, your secondary goal is to have a significant amount of money saved up in a few years. If you’re in the same debt down the road, then selling your house is less than pointless.

You Have Significant Equity

If you’ve paid off a sizable chunk of your mortgage, downsizing may be the only option to protect your equity. In many cases, it’s possible to use the proceeds of your property sale to purchase or rent cheaper accommodations. Doing so can save you tens of thousands of dollars in interest and make you debt-free sooner.

You Plan On Moving

The first six scenarios on this list were financial reasons to sell your house to pay off debts. The last three reasons are practical reasons to consider.

If you plan on moving, you’ll likely sell your house anyway. Relocation for a better job, lower cost of living, or familiar reasons will push you off the fence into the side of selling your house. Ask yourself, how in love are you with where you live?

Do you plan on living here forever?
Will changes in your family structure affect where you want to live?
Are you close enough to family?
Will your finances change, making it difficult to stay?
Are you a soon-to-be empty nester?

Your Health Is Suffering

Debt has a way of affecting every area of your life, not just your wallet. People in debt are more likely to face issues with their mental health, like anxiety and depression. They’re also likely to face sleep issues, which will affect their physical health.

The homeless epidemic is a taboo topic, but how many people on the streets just can’t cope with the stress of mounting debt?

This crushing reality shows you how high the stakes are. There is a light at the end of the tunnel because you’ll experience the opposite when you break the cycle of debt.

You Don’t Like Your Home

With home prices skyrocketing (as I write this article), it’s a better time than ever to sell your home. If you don’t like your home or where you live, then it may be time to cut and run. 

The Risk Of Selling Your House To Pay Off Debts

We listed a ton of great ideas to sell your home and get out of debt. We could end the article right there, but you should know that there is risk involved with selling your home.

Let’s look at a few risks:

  1. You may find it harder to qualify for a new home if you want to buy again.
  2. You may find it hard to find a cheaper home to successfully downsize.
  3. Buying a cheaper home doesn’t mean lower costs if you have high maintenance costs.
  4. Your home may not be worth as much as your real estate agent and appraiser say.
  5. Selling a home takes a considerable amount of time. This is time you could spend working a second job or exploring alternatives to stay in your home.

Moving can be a traumatic event if you have connections to a home. It becomes even more difficult when you have children. They’ve built up memories in the home and likely go to the school system tied to the school.

Alternatives to selling your house to pay off debts

Do you have enough cash to cover your bills and a few more mortgage payments? If so, use the breathing room to research your next move. 


Refinancing a home involves replacing an existing mortgage with a new one, typically at more favorable terms. The primary goal of refinancing is to lower monthly mortgage payments, secure a lower interest rate, or access the equity in your home for various financial needs.

One of the key benefits of refinancing is the potential to save money in the long run. A lower interest rate can lead to reduced monthly payments, freeing up cash for other expenses or debt management. Additionally, it allows homeowners to consolidate high-interest debts, like credit cards or personal loans.

Deciding between refinancing and selling your home to downsize depends on individual circumstances. Refinancing is a suitable option if you’re happy with your current home and want to improve your financial situation. However, if your home no longer meets your needs or you seek a significant change in lifestyle, downsizing might be a more appropriate choice.

Home Equity Loan

A home equity loan can be an attractive alternative to selling your home to pay off debt. This offers a means to tap into your property’s value while retaining ownership.

A home equity loan allows homeowners to borrow against the equity they’ve built up in their property. Essentially, it’s a second mortgage where you receive a lump sum based on the difference between your home’s current value and the outstanding mortgage balance.

Steps to Getting a Home Equity Loan

To secure a home equity loan, you’ll typically need to follow these steps:

  • Determine your home’s current value through an appraisal or market analysis.
  • Calculate your equity by subtracting your existing mortgage balance from the property’s value.
  • Apply for the loan with a lender, providing necessary documentation such as income verification and credit history.

If approved, you’ll receive the loan as a lump sum, which you can use to pay off debts or for other financial purposes

Not everyone qualifies for a home equity loan. Factors such as a low credit score, insufficient equity in your home, or a high debt-to-income ratio can lead to rejection. Additionally, if you’re at risk of defaulting on the loan, lenders may hesitate to approve it.


Depending on the depravity of your financial situation, bankruptcy can be a viable alternative. The biggest advantage is that most states have a homestead exemption amount based on dollar value. This means you can keep your home while you reorganize or discharge debts.

  • Debt Discharge: Chapter 7 bankruptcy, in particular, can provide a fresh financial start by discharging many unsecured debts, such as credit card bills and medical expenses. This can significantly reduce the burden of debt without requiring the sale of your home.
  • Home Equity Protection: Bankruptcy laws often provide exemptions that safeguard a portion or all of your home’s equity, shielding it from creditors. This means you can retain your home while addressing your debt issues.

Bankruptcy also has its downsides, including long-lasting effects on your credit score and the potential loss of non-exempt assets. The decision between bankruptcy and selling your home depends on various factors, such as the extent of your debt, the value of your home, and your long-term financial goals.


A sale-leaseback is a financial arrangement where a homeowner sells their property to an investor or buyer and, in turn, immediately leases the property back from the new owner, allowing them to continue residing in their home.

This arrangement allows you to access the equity in your property without the need to relocate. This can be particularly advantageous if you have a strong emotional attachment to your home or want to maintain your current lifestyle.

However, whether a sale-leaseback is a good idea depends on individual circumstances. It can provide liquidity to address debt, but the lease terms and costs must be carefully evaluated.

One potential drawback is that your rent may be higher than your previous mortgage payment. Sale-leasebacks are not as common as traditional home sales, and availability may vary by location and market conditions. They are often more prevalent in areas with a high demand for rental properties and may not be a widely available option for everyone

Eliminate Car Debt

As much as we Americans love our wheels, let’s face it. Your house likely has much more sentimental and emotional value than your car. It’s also a lot easier to find a cheaper replacement for a car than for a house.

Tighten Your Budget More

You might find yourself in a situation where your credit is sinking as you struggle to keep up with bills. Your gut reaction may be to sell your home to cover your debt and interest payments. This may fix the sinking ship, but where will you go next? If your credit score is in the toilet, you’ll struggle to buy or rent in this real estate market.

Lenders are willing to work with lower credit score borrowers if they have a significant amount of money to put down. However, that’s not the case if your only option to pay off debts is to sell your home.

That leads us to our final and most important debt escape strategy. 

Tighten your budget.

The beginning of this article discussed how common debt is in the United States. Most financial experts would agree that spending habits play a role in why many Americans live in debt. 

Here’s an easy step-by-step strategy to tighten your budget:

  1. Determine how much money you need to get current on your mortgage.
  2. Make a list of your expenses and debts.
  3. Go down the list of each expense and ask, “Can I live without this expense more than I can live without my home?”

If the answer is “yes,” get rid of that debt ASAP. This can be entertainment subscriptions, a new vehicle, or giving up eating out.

Selling Your House To Pay Off Debts: Is It Worth It?

Debt sucks, but it’s not the end of the world. If you want to take an aggressive approach to lowering your debt, selling your house may work in your favor. Honestly, multiple of the reasons we listed to sell should agree with your situation. If they don’t, consider alternatives.

Whether you are buying a home or refinancing an existing home, it is important to make informed housing finance decisions that will help make homeownership viable and affordable over the long term.

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Contact us below or call (978) 228-1068 to speak with us about selling your home fast.

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Elie Deglaoui - Author


Elie Deglaoui

Elie is our office admin who handles all our day-to-day tasks and makes sure we always stay on track. He brings his love of music and sports into the office everyday to always liven up the environment. His outgoing personality makes it easy and fun for him to talk to homeowners, homebuyers, and everyone in between.

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