General Question

kevbo's avatar

Have you ever cashed out a significant chunk of assets to pay off all of your debt? In hindsight, was it the right decision and why?

Asked by kevbo (25624points) December 2nd, 2009 from iPhone

I’m contemplating selling my house to be free of debt. I feel like my monthly obligations are holding me back and I’d love to be done with my undergrad loans and the unpleasant ties to my undergrad education. Selling and paying off debt will likely mean not owning a home for a decent amount of time, but I’m no stranger to living cheaply.

That said, I realize this is probably not the best on paper decision, but sometimes you have to take a leap of faith.

So did you do something
like this and did it work for you? Why or why not?

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6 Answers

noelasun's avatar

Earlier this year, I was faced with school loans and other debts that I could make the minimum payment for, but with interest rates, I felt like I wasn’t making a dent in the actual amount. So I sold my car and took money out of my savings to 1. completely pay off the “little debts” ie credit card, etc and 2. pay a chunk on my school loans
So far, it looks like I’ll be done with the loan re-payment process by this time next year, which is a HUGE change from before, where with the payment installments I’d be paying off my loans for another 6 years.
It’s for sure paid off for me, and I love that with good planning and a bit of luck I’ll be completely debt free in less than a year. (though not having my car is a bummer) And with my other monthly payment obligations gone, (some of them) I’m finding that it’s so much easier to save money.
As a house is a way bigger deal than a car, I don’t know if this helps, but I don’t regret my decision the least. =)

RedPowerLady's avatar

I wish I had that option. I would so go for it.

Haleth's avatar

All the advice I’ve ever heard about debt is that you should pay off your debt before starting to save money, because what you pay in interest on your debt will always be higher than the interest you earn on any long-term savings. Selling your home seems like a really drastic step, though. The housing market still isn’t that great, so you probably won’t get as much money for it as you should. And even a really expensive undergrad education is a lot less money than a house. There are so many things I would try to do before selling my house. You might be able to re-finance or use your equity to pay off your loans, without having to sell. I’m not exactly sure how it works, because I don’t own a house, but you might be able to get a more favorable loan with lower interest rates or even a reverse mortgage. You said you’re used to living cheaply, so maybe you can re-think your current budget and figure out if there are any extras you can put toward the loans. I would be very willing to do this, but I don’t know if you can- either pick up a second job, or rent out a part of your house for extra money. If you’re able to pay more than the minimum, you might also be able to re-negotiate your student loans for a better interest rate.

faye's avatar

What about a homeowner’s line of credit? I have that and the interest is much less. Your house value might go waaay up and you’d regret selling it so much.

kevbo's avatar

I appreciate the middle of the road approach offered above, and I do appreciate you sharing your perspective. I’m mainly interested, though, in responses from folks who have gone the more definitive route with respect to the question.

PandoraBoxx's avatar

I would look at what your mortgage payment is compared to what rent would be. You do have the interest deductiblity on the house; on the other hand, you have upkeep and maintenance as well. If your house is draining you, then by all means, pay off the house and get out of debt. The key is to immediately start saving. Not being tied to a house gives you a certain amount of mobility that you would not have with the house.

I took a loan out against my 401K and am paying myself back at 7%. Given that 3 months after I took out the loan, my 401K had a -37% earnings rate for a year, that 7% is not looking so bad. I have a 4 year repayment; if employment is terminated, the full about is due. I have no regrets for doing that.

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