Readers sometimes ask for my advice, as in today’s post. Although the advice I give might be worth what they paid for it, I strive to do my best. Following is a copy of an actual email (without names), along with my response. I would love to hear your thoughts on whether this family should sell their house to pay off their debt.
Letter from reader:
“Hi Joe, thank you for taking our question! Although I know we have been poor money managers we are now in our early 50’s, have 3 kids in college that are 100% loan funded, and about $40,000 in debt other than education. We have about $50,000 equity in our home. We are contemplating selling our home, paying off debt and renting an apartment for a couple years to get ahead.
We have approx. $1,000,000 in retirement, but are living paycheck to paycheck along with trying to keep our house updated and repaired in case we need to sell.
What is your opinion?
Thanks again for your time if you ever really see this e-mail yourself!
“I don’t think selling your home is a good idea because you would be circumventing your real problem: in your own words “poor money management”. Yes, you could do so and use that $50,000 to pay off debt, but unless you learn to manage your money, you would still be living paycheck to paycheck. I want to congratulate you on your retirement nest egg. Well done! But giving up that home equity could endanger that retirement. How? Because you should be planning to have a paid for house when you retire. Being at the mercy of a landlord or having huge house debt (assuming you buy another house) at retirement is not a good plan.
My guess is that you are paying huge amounts into a 401k, IRA or other retirement planning investment account. You might consider temporarily cutting back those contributions to only what you need to receive any 401k match from your employer, and use that bump in take home pay for debt reduction. If that debt happens to be credit card debt, you will make more on your money by paying it off than by continuing to invest it.
I don’t know the specifics of your budget, but you need to figure out how to live sacrificially, cut your life style and get that $40,000 debt out of your lives. Also, if you have signed up for the student loans, you need to figure out how to minimize the damages. Have kids attend community colleges or state universities, commute from home (if possible) and work like dogs to pay their own ways.
I don’t like student loan debt, but if it happens, it should be their debt, not yours. If they own it, they will (hopefully) figure out how to keep it down. At any rate, they have lots of options (scholarships, work, job co-op, laying out every other semester, military, etc.) and time to pay it down. You don’t.
You asked for my opinion, so here it is. I hope this helps.”
OK Readers: your turn. How would you advise this family?
Because I am in Mexico on a mission trip, I will not be able to respond to your comments for at least a week, but I look forward to reading them. Thanks!