Sell condo to pay off credit card debt and start saving?

[le-weekend]

At age 41, I have 25K in credit card debt, a nascent 401K, and I just spent the several thousand dollars I'd managed to save for emergencies on, well, emergency expenses (medical and car).

I've recently gotten a raise and started saving more, and I've been paying off credit cards in earnest as well as learning to live without debting.  But this good behavior is relatively new for me and I'm a little worried about sustaining it. I want to make it to retirement (never mind early retirement) in good financial shape.

My question is whether I should sell my condo. I made foolish decisions to get it (such as borrowing from my 401K to make a 20% down payment, then getting nailed with $8K of taxes the next year, then using credit cards to pay back my 401K loan....), and now I'm living in about 65K of equity while suffering with credit card payments and no savings!

I figure I could pocket about $50K from the sale, which would pay off my credit card debt and give me a great nest egg for emergencies and investment.  I can rent an apartment to live in (smaller, but adequate) for the same or slightly lower monthly payment. Although I won't be gaining equity anymore, in a few years when I'm totally debt free and had some time to increase my savings, I can consider buying something again.

Any advice is most welcome. Thank you.

[dandarc]

Before you sell, just be sure that your new spending habits are well ingrained.  It would be easy to sell the condo, pay everything off, and find yourself in 1-2 years with 25K in debt again, this time without 65K in equity in a condo to cash in.  That's the risk you take when you push the easy button on this - you might not develop the same habits you would if you tough it out for a couple years to clear the debt with cash-flow.

[le-weekend]

Thank you dandarc, that is excellent advice. Definitely my biggest fear!

[Another Reader]

The costs to sell a property are high, and you would have to incur buying costs when you bought again.  That's not an efficient way to solve your problem.  Not being sure you could maintain your self control is another good reason NOT to sell the condo.  With a clean slate, you might return to your old spending habits and end up with more debt and no condo.  In your shoes, I would take a different approach.  I would develop a budget that included debt repayment and savings as line items.  Once I was sure I could stick to the budget and sustain the debt-free, saving/investing behavior going forward, I would re-evaluate the condo.

[Retire-Canada]

How much is your take home pay monthly?

How much is your expected savings/month?

How much is left on your mortgage at what interest rate?

What is the interest % on your CC?

Without that info it's not possible to assess how big a problem that $25K CC debt is and if you need to consider selling the condo.

[surfhb]

No way!  You're going to need to eat shit so you learn what debt does to you. 

Good luck

[le-weekend]

To Vikb -- thank you. Here are the answers:

Monthly take home (after taxes, health insurance, and 401K contributions): $3000

Expected savings per month: $400 - 500

Left on mortgage: $173,000 at 3.75%

Credit card interest rate: kept low by rolling balance onto different cards using promo offers, usually 0% to 7%. Each time you use a promo offer (every 6-12 months), you pay a few hundred dollars transaction fee.

[Retire-Canada]

I understand your desire to sell the condo better now.

Knocking down $25K CC debt [even if the rates are not crazy] at $500/month is going to take a long time.

Your current savings rate is ~17% @ $500/$3K. Do you want to look at increasing that? It would require an examination of your expenses and the willingness to make some significant changes.

If you can get to $1K/month that not only helps you kill the CC debt much faster it also sets you up to save a lot more before you retire.

[snogirl]

My situation was similar to yours though I didn't buy a condo (it was a fixer upper). My situation's back story isn't as important as the action I took 1 yr ago to get out of 25k off CC debt.
Basically I cut every single expense I could meaning cable, internet, amazon prime, audible, netflix, my gym membership etc. Bare bones!
I counted every single cent I spent in a small notebook.  That helped me stop buying coffees, take out, friends lunch, packs of gum, seriously stupid little purchases that add up quickly.
I did a purchase pause & sold all kinds of excess touching every single thing I owned or rather owned me. All extra cash from this & those unneeded services went to debt.
In one year of following this I paid off all my 25k in debt, saved enough to buy in cash replacement windows for my fixer upper. I'm healthier & happier. Now I'm working on a heloc for emergencies & paying down my mortgage. No other debt left!  You can do it too. 

[le-weekend]

Hi snogirl -- that's amazing, congratulations!

I've been tracking every expense for about 6 months and being more mindful of groceries and eating meals out. I'd like to think I'm frugal because I'm not into Starbucks or alcohol but of course thinking you're "frugal" in a big city surrounded by middle (upper?) class influences at all times, the idea of "frugal" sure is relative. I'm also selling a bunch of stuff on craigslist. But cutting cable and internet still gives me the willies. Sometimes I work from home and need high-speed internet to do it. Of course when I ask Verizon how much it is for ONLY internet, the price is like $10 less than the whole bundle.

Small steps....

[Roots&Wings]

Personally, I'd consider selling if I had a chance to clear $50k on the sale, pay off all debt ($25k), invest the remainder ($25k), and have lower ongoing housing costs through renting. Unless this was my forever dream home, or an area with highly appreciating home prices.

If you could rent out a spare room for additional income (at say $500/mo as a guess), you'd still be looking at around 4 years to pay off the $25k debt, unless you divert other savings to knocking out the debt sooner. It is hard to offer advice given the many cost unknowns and the hugely varying interest rate (0%-7%).

[snogirl]

Small steps....

Exactly!
It happened for me, just like many others here, one day at a time!
I understand the internet/cable thing....I do not need it for work at home, use my data plan on occasion or free wifi spots.
Being in Vermont, I am more of an outdoor person, if I was in the city, I am sure it would be different.
I use the library a lot for DVDs or go to lots of free or inexpensive cultural/recreational events.
It has made become more social too for I don't drink either lol.
Good luck to you and what you decide on the condo!

[le-weekend]

Here it is, almost two years later, and I am humbly grateful to report that I'm three months out from achieving a zero credit card balance, without having sold my home. Strict budgeting and learning to cook simple scalable meals has been a life changer.  As has cutting way, way down on buying "small" luxuries that add up fast. It's been a huge eye opener. Thanks to everyone who was kind enough to offer such solid advice.

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[Dee18]

Congratulations!  Always fun to hear a success story!

[Dave1442397]

That's great! Time to crank up the 401k contributions!

[tralfamadorian]

Yay!  Congratulations!!!

[former player]

Thank you for coming back and telling us your success story.  And congratulations.

What financial plans do you have for once the debt is gone?

[le-weekend]

Great question. More savings first of all. On a broad level,  my dangerous relationship with debt was fueled by many factors, and I'm working to unpack all of that.

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[frugaliknowit]

What are your monthly payments on the condo?

Mort+taxes+assesments?  It sounds like the costs are pretty high for $3k per month take home ($45K/depending on state taxes).
How many times income is your mortgage?