Mad_About_Money_final Mad About Money_Dec 2016 | Page 16

MadAbout

MadAbout

Money

Money

I

f your debt situation
is very bad, you may
even have to sell
things that you need, like
your car, your jewellery,
furniture, air-conditioners, music-system and
other household items.

WHAT ABOUT
YOUR HOUSE?
Do you include that in
the things that have to
be sold to clear your
debts? A home has a lot
of emotional value for
the owner. It is not very
easy to sell something
that you are so attached
to. If you have the
means to pay off your
EMIs and other loans
by just cutting down
on expenses in a few
areas, then hold on to
your house – do not sell
it. Find other sources of
income if need be.

IS IT OKAY TO SELL
YOUR HOME TO PAY
OFF YOUR DEBTS?

Though not always the
best option, selling
your home to make
repayments on your debt
makes sense in maybe
two scenarios.

What do you do to pay back your debts? How do you repay the money
you have borrowed at different times for your various needs?

1.

One way is to work harder and
earn more – this could mean
taking on another job, or working
longer hours in jobs that pay
overtime wages.

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2.

Another way is to spend
less – on food, on travel,
on clothes, on holidays and
other things that are not
essential.

3.

A third way is to sell
things that you own
which you can do
without.

Scenario 1

IF THE EMI IS VERY
HIGH
If the EMI’s on your
house-loan are very
high, then you will have
very little money left to
pay off your other loans.
Ideally your EMI on the
house should not be
more than 25% of your
take home pay. If it is
higher, then you will be
left with insufficient funds
to manage your monthly
expenses and also pay

back your other loans
visa car loan, education
loan, etc. In such a
situation it is probably
better to sell your house
and use the proceeds
to pay back your other
loans or at least a large
part of these loans. That
will reduce your debt
burden considerably.
With what is left after
paying back your loans,
you can either make
a down-payment on a
smaller or less expensive
house or you can rent a
place to stay and save up
to buy a house later.
What happens is that
instead of taking years
and years to clear off
your debts, you can

pay back your loans
in a shorter period of
time and then think of
investing in real estate all
over again.

Scenario 2:
IF YOU ARE
THINKING OF
SHIFTING

Suppose you are shifting
base and going to
another town/country,
then you may consider
renting out your house
or selling it. Either way
you will get funds in your
hands. If your monthly
rental is sufficient for your
EMIs and other loans
and for house-tax and
maintenance, then do

not sell. If not, then take a
look at the value of your
property and do a little
calculation.
Deduct selling costs
(broker fees, tax, interest
admin charges etc.) from
the market value of your
house to get the amount
you have in hand. If this is
greater than your debts,
then sell your house
and use the money to
pay off your loans. Keep
aside some money for
emergency and invest
the rest in property such
that you can afford the
EMI’s. Each individual’s
case is different so do
these calculations before
you take the final step of
selling your home.

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