What To Do When Your House Value Doesn’t Cover Your Debt

What To Do When Your House Value Doesn’t Cover Your Debt

 

 

You probably have a pile of debt.

And it’s probably getting bigger, not smaller, right?

You’re not alone.

Most of us do, and it’s the kind that gets bigger every year.

According to Statistics Canada, 71% of all Canadians carry some form of debt (2012).

“Yes, that includes mortgages, but it also includes a growing pile borrowed to buy cars, new kitchens and many of the fashionable material trappings of the modern middle-class lifestyle”(1)

How do people deal with it?

Three ways.

They ignore it, letting debt climb every year, and hoping it gets better one day. We won’t go into why that’s a bad idea.

They refinance, using equity to pay off debts. Basically, it’s like using your house as a debit card, withdrawing cash whenever you need it. The plan is shaky, and depends on the market value to increase forever and without stopping. (Don’t think prices will drop? Our neighbors to the south thought that too…)

Or they sell, thinking the profits should be enough to dig them out.

That’s when they jolt awake to the fact that the sale won’t necessarily cover that pile of debt.

And it makes them crazy. The thought of getting a payday can make people do some wacky math.  (Just ask anyone who’s dealt with the division of an estate)

They’re shocked. Disappointed. Outraged and defiant even.

But here’s the thing.

The value of a property is not based on how much debt a person has.

Aren’t you glad? Imagine paying double for a house just because the guy who owns it happens to have loads and loads of debt. Would you pay it?

Umm, no.

And they won’t pay you either, sorry.

So what can you do when the sale doesn’t cover your debt?

Brace yourself, you’re about to hear things you already know.

 

  • Adjust your expectations. Remember – house value is not at all impacted by your finances. Besides, no one owes you financial freedom any more than you owe it to them.
  • Decide to stop adding to the debt pile now! It won’t grow if you don’t feed it.
  • Make a plan to pay off existing debt. Selling the house, when the value doesn’t cover it, is not the plan. Make a new one. Second jobs, selling other assets, reducing spending and throwing down higher payments… do what you must to climb out.

It’s that simple, and that difficult.

Overspending is killing us, and entitlement about house prices is not helping.

Welcome to the reason we’re all in debt up to our eyes.

I’m in the trenches with you, and the other 71% of Canadians.

What’s say we climb out instead of expecting others to pay our way?

Tina Plett, Sutton Group-Kilkenny Real Estate

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