Should I sell my home to pay off my debt?

Yesterday we had a great discussion about some of the financial choices I'm facing, but today it's time to look at a decision a GRS reader is trying to make. Catherine wrote to ask if it makes sense to sell her home so that she can become debt-free and have the freedom to pursue a simpler life:

I'm in my mid-forties, self-employed in a high-cost city where I live in a one-bedroom condo that I bought ten years ago. I have about $220,000 in equity in the condo (and about $132,000 left on the mortgage).

My mortgage is very affordable because I refinanced into a 30-year loan last year. Still, housing costs eat up about $1500 a month (and would be $400 more if not for the refinance). If I rented, I'd probably spend about that much for an apartment. As part of my housing costs, I pay over $500 each month toward the homeowners association, and there are a number of expensive building renovations looming on the horizon.

I haven't been putting more money towards the mortgage because now I'm obsessed with thoughts of selling my apartment and renting to give me more flexibility in pursuing a less stressful life. (My dream includes a small house in a lower-cost city, having a garden, etc.) I make a decent living, but I don't love what I do. On the other hand, I have no idea what I'd do if I switched careers.

Other than my mortgage, I have:

• $2,000 in credit-card debt
• $14,000 owed on a home-equity line of credit
• Nearly $300,000 in retirement and investment accounts
• $10,000 in an emergency fund and another $1500 in savings

If I sold the condo, I could pay off my debt, pocket a good chunk of change, and have more time to think about what I want to do with my life. Is it crazy to sell my home when I don't have my plans mapped out yet? It would be such a relief not to worry about the ever increasing condo fees and the repairs I'll need to make soon…

When I first read Catherine's e-mail, I thought she was asking whether she should sell her home to pay off her debt. But that's just a part of what's going on here. Catherine has $300,000 in retirement savings, $220,000 in home equity, and almost $12,000 in savings accounts. That's about $532,000 in assets to just $148,000 in liabilities. Not bad.

Still, I'd be cautious about rushing into anything. While I absolutely think Catherine should explore new careers, I think she should be patient as she does so. Here's my advice:

• Don't make any sudden decisions. Take small steps, and test-drive choices. First, Catherine needs to decide what her long-term goals are. This can be tough. If she doesn't know what she wants to do ten years from now, she should do some self-reflection: Take time to see a career counselor, somebody who can guide you through your journey. (My friend Michael — the man who inspired Get Rich Slowly — has helped both me and Kris on our own career journeys. He's just started a career counseling blog.)
• Consider the long-term housing market. Catherine could sell, but she should be aware that many experts expect home prices to recover some of their losses over the next few years. (Some of their losses, not all.) By waiting 24 or 36 months — during which time she could research potential futures — Catherine may find that she's able to get even more for her house. (Plus, if she's diligent, she may be able to pay off her $16,000 in debt.)
• Don't rent — not yet. Catherine says that if she rented in her city, she'd probably pay about the same as her mortgage. But when she pays her mortgage, she's building additional equity in her home, something that renting wouldn't give her. I'm not a “you must own a home!” zealot — if fact, I think renting can be a great choice — but in this situation, I think Catherine is best served by staying in the house until she's made a definite decision to live elsewhere.

The more I think about it, the less this is a personal-finance question, and the more it's a question about personal values. It's yet another example of how money is more about mind than it is about math; no economist has yet constructed an equation that accounts for the decisions Catherine has to make!

Have you ever faced a choice like this? (Or do you know somebody who has?) What would you do if you were in a ho-hum job in a house you didn't care for, and had the opportunity to try something new? Should Catherine take a risk — make a leap of faith, sell her home, and move somewhere else? Should she just bite the bullet, stick with her job, and keep at what she's doing until she retires? What other options should she consider?