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Should We Sell Our House and Rent? – Liliec

“Hi Steve,

My husband and I are trying to decide if it makes sense to sell our home and rent for a while to pay down our credit card debt.

We have $78,000 in credit card debt – we have been using the credit cards to cover the gap between our expenses and our earnings. We have not been late on any credit card or mortgage payments, but are using the credit cards for groceries, gas, etc.

We are both committed to reducing our debt, but we can’t reduce grocery costs, etc any lower. We have a combined yearly income (both working full time) of $115,000, a monthly mortgage/insurance cost of $3300, and two small children in full-time daycare which costs $1,600 a month.

We bought our house in 2004 for $500k and a realtor estimates we could sell the house for $510-520k. We currently have $465k left on our mortgage, so we would barely break even after the sale of our house.

However, we could rent an even larger house for less than $1,800 a month and use the difference in mortgage/home maintenance costs towards paying off our credit card debt – and – we would be able to live within our means.

My husband feels that the best financial solution is to continue to use our credit cards to bridge our monthly gap, as long as we are “paying off” more than we are charging (for example, we charge $1000 a month on credit cards, but make payments totalling $1500 a month, so are very slowly paying down the cards).

He feels that selling the house is a bad idea for our financial future, that renting is throwing money away, and that selling the house would be a temporary fix and that in the long run we would be “worse off”.

I don’t like relying on credit cards for monthly expenses, and am worried about being forced to sell our house in a hurry if we have any sort of large expense since we have no savings (ie we have only one car, an old one which is on it’s last legs).

I would like to rent for a few years to get our financial situation in order, then consider buying again once we clean up our debt and learn to live within our means. We saw a financial credit counselor a few months ago, who recommended that we significantly increase our income, sell our home, or declare bankruptcy, but my husband does not believe selling our house is the best option, and has done his own calculations showing how much “worse off” we would be if we sold the house. I don’t know what to think and this is keeping me up nights.

Thank you for your advice.

Liliec”

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The Answer

Dear Liliec,

Great question, tough to answer.

Ultimately what this boils down to is which is the most prudent approach that provides you with both a financial safety net and emotional security. On one part of that situation I can provide you with clear advice. On the emotional security part, well, it just appears that you and your husband have a different set of beliefs that create that emotional financial security. For you it means tackling the situation now, for him it appears to be “damn the torpedos, full steam ahead” and any retreat would be emotionally traumatic or undesirable.

From what you shared with me I can tell that you don’t have an emergency fund to fall back on in case you need it. There is no savings account and no real money to save. I find it very difficult to believe your balances are going down even by $500 a month and I think the both of you don’t have a good idea where you money is vanishing to each month. If you want to create a realistic spending plan, not a budget, then download my free book “Eliminate Your Debt Like a Pro” and start reading on page 81.

Frankly, I think you guys are closer to a financial disaster than you recognize. You see, the putting living expenses on cards is a shell game. It’s not like you are using the cards for transactions you can afford, you are financing transactions you can’t afford at the beginning of the month and praying the money comes in to pay it off.

Without any savings and financing your monthly expenses, all it is going to take is just one unexpected event and all the progress you have struggled to make to pay down your debt goes out the window. And you’re not in a position where you can both save and reduce debt.

Just imagine what would happen if the car needed to be replaced or the engine blew. A new engine, even a rebuilt one will cost you thousands of dollars. Where will you get that? Will it just wind up on credit and erase the debt reduction you’ve made so far? I’m afraid it will.

Let’s say the car isn’t worth repairing and you buy a new or used one. How can your expenses absorb a $500 a month car payment? They can’t.

From my point of view I think it makes sense to regroup, live within your means, reduce your expenses, and build a better foundation. The path you are on now is an accident waiting to happen.

So if you sell your house now will you be able to buy in the future? Absolutely. By getting your debt under control and a reasonable emergency fund built up you’ll be in great shape.

Many people think rent is throwing your money away, but it’s not really. Just take a look at the current size of your mortgage payment and how much is going towards interest. Then factor in how much it costs to properly maintain, keep up, and run your house.

Renting allows you to live for a lot less, pay down your debt, and leave the expenses and hassles of homeownership to the landlord.

Sometimes you have to back up a bit to be better able to face tomorrow.

Big Hug!

Should We Sell Our House and Rent?   Liliec
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • belindaramirez

    if you are moving for good then it buying a house is more advisable rather than to rent. Just make some research to the place and visit it before deciding to move to your new place.

    Belinda Ramirez,
    Boston Movers
    Secure Movers Co.

  • Liliec

    Steve – I can’t thank you enough for your thoughtful advice. My husband and I looked at your response together, talked it over, and have decided to sell our house. We talked with another realtor and it looks like we may even be able to sell for more than we expected. Making the decision to sell has taken a big weight off both of our shoulders, and we’re now both looking forward to living within our means and paying off our debt together. I really appreciate your help and honesty, your answer and caring helped us more than I can say.
    Sincerely,
    Liliec

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