Americans are drowning in debt. According to Experian data , consumer debt soared to $17.1 trillion in 2023, up 4.4% from $16.38 trillion in 2022, averaging $104,215 per household. The most common types of debt include personal loans, mortgages, student loans, home equity lines of credit (HELOC), car loans and credit cards, which saw the largest balance growth of 17.4% last year.
With the rising costs of everything from cars to groceries, household essentials and houses, inflation is partly to blame for the increase in debt that can seem overwhelming to pay off. If you’ve tried everything from cutting back on spending to selling anything not nailed down in your place, but the debt is still too much, it might be time to think outside the box and sell your home.
Although it’s not the right move for every homeowner and seems drastic, it could free up enough funds for some to better manage their finances. According to finance guru Dave Ramsey , who has helped countless people become debt-free over the years, there are only two times when it makes sense to sell .
The first reason to consider selling is if your monthly mortgage payment is so big you can’t put money towards paying down other debt.
“Your mortgage payment should be no more than 25% of your monthly take-home pay,” per Ramsey Solutions. “If half of your income gets swallowed up by your mortgage every month, it’s a no-brainer. … Cutting your housing budget down to size is the only way you’ll ever make progress.”
In this circumstance, Ramsey suggests renting temporarily until you’re back on track financially.
The second scenario to consider selling your home is if you want to move. If you’re attached to your home and the mortgage payment isn’t squeezing you to the point you can’t throw money at your debt, Ramsey Solutions recommends picking up a side gig to pay down debt faster, instead.
But if you already planned on selling, there are three things to determine beforehand.
Are you upside down on your home and owe more than it’s worth? To figure that out, subtract your mortgage balance from your home’s market value, Ramsey wrote. So if you owe $175,000 on your home and it’s worth $275,000, you’d have $100,000 in equity — but if you owe that $175,000 and the home will only sell for $150,000, you’ll be out $25,000.
Calculate closing costs. For sellers, the closing costs include interest, taxes, insurance and agent fees, which range from 2% to 4% of the price of the home, per Zillow.
Make sure you can afford another home. Unless you’re moving in with family, chances are you’ll buy another house once yours is sold. Ramsey suggests putting at least 10%-20% down and opting for a 15-year fixed-rate mortgage. Your monthly payment shouldn’t be more than 25% of your income.
Selling your home is not ideal for everyone, so before putting your house on the market, look at the numbers and see if it works.
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