This strategy only works if you have enough equity to cover the debt. If your home is worth less than what you owe (underwater), you’re not in the driver’s seat. That’s a tough spot, but then you’re looking at short sales or negotiation—not this trick.
Also, check your loan terms. Some mortgages have prepayment penalties if you pay off the loan early. Rare, but annoying. And don’t forget capital gains tax if your profit exceeds the exemption (usually $250k for single, $500k for married). But for most folks, that’s not an issue.
Finally, a dose of reality: paying off debt with equity doesn’t fix the spending habits that created the debt in the first place. You’re cleaning the wound, not stitching the vein. So after you move, maybe close the credit card accounts. Or at least cut them up. Do it. I’ll wait.
The Bottom Line
Moving house is stressful enough without letting equity slip through your fingers. Treat that check like a sword, not a pillow. Use it to cut off the debts that have been nibbling your paycheck for years. You’ll walk into your new home lighter, freer, and maybe even a little smug.
So, next time you’re signing those closing papers, look at the numbers and ask yourself: “Do I want a bigger kitchen, or do I want to never think about my credit card again?” One of those answers is way more satisfying. Trust me. Dave’s buying a round this weekend with the money he saved.
