Total credit card debt in the US stands at $1.18 trillion this year, with 4.3% of debt in delinquency, according to the Federal Reserve Bank of New York. With these near record-high numbers, many Americans are feeling the pinch and want to find ways to dig themselves out. But should you allow your debt to disrupt your retirement plans?
Let’s look at the example of Gavin, a 40-year-old married man with two children. He bought a home in the Caribbean in 2019 with the goal of eventually making the house his retirement home.
The house is worth $400,000 now, with a $120,000 mortgage balance. Unfortunately, the mortgage loan has a variable interest rate, which is currently at 10.5% with no possible options for refinancing.
The home currently generates $700 per month in profit as a short-term rental, but makes less during off off-season and managing it is stressful. Worse, the neighborhood may soon prohibit short-term rentals in the area, so that would be the end of this revenue stream. Additionally, Gavin might also be on the hook for local property taxes and, as a foreign investor, other possible fees and taxes too.
On top of this, the buyer is a renter in the US where he currently lives and he has $50,000 in credit card debt. Does it make sense for him to sell the vacation property to pay off what he owes? He’s considering buying a home locally and using the rest of the money to invest, build up an emergency fund, or start a college fund for his kids.
Selling the vacation home in this particular case seems like an easy answer.
While it is currently generating a small profit, earning $8,400 per year on a $400,000 asset isn’t a great return, especially given the hassle of being the host and the substantial interest he is paying on his mortgage. But losing the short-term rental income would be a major downside.
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Aside from the poor ROI of the home, the interest on $50,000 in credit card debt that he currently has is an absolute financial killer, given that the average credit card interest rate is 21.16% as of May 2025. The $700 per month he is earning from his rental most likely is not even enough to cover the interest that his credit card debt accrues each month.
With a home worth $400,000, and assuming closing costs are around 4% (the average is 2% to 5%), this homeowner would still end up with about $384,000 after paying for the transaction fees from the sale of the home.
Now, since the home isn’t his primary home, it’s possible he could owe capital gains taxes if his profits exceeded $250,000 as a single person or $500,000 as a married joint filer. However, since Gavin is married and the home isn’t netting in excess of $500,000, he’d likely be spared this tax. He may also need to pay additional sales taxes to the government of his host country. If he doesn’t, he could pay off the $120,000 still remaining on the mortgage he owes, as well as his $50,000 in credit card debt and still walk away with around $214,000.
That would be a good start to make a down payment on a home in the US for his family (in which he can retire), or to start investing for his future. He could save for his two kids to go to college, start an emergency fund and best of all, free up a lot of income by eliminating his credit card debt and the interest he would be paying on that into the future.
In fact, if he uses the money wisely, he could not only set himself up for financial stability, but he could also choose to save to buy another retirement home down the road, when it makes more financial sense.
While Gavin’s circumstances make a strong case for selling the home, it’s worth looking at whether there are any downsides to doing so, beyond losing the $700 in rental income.
Since the home he owns doesn’t have a great mortgage, isn’t generating a big profit and there’s no reason to believe it is a one-of-a-kind home, there’s very little downside in cashing out now and using the proceeds to create some more financial stability.
The only real risk would be that real estate values skyrocket in his chosen Caribbean retirement destination. This would either price him out of buying his dream retirement home later on or prevent him from earning more on the possible future sale of his vacation home. However, it’s unlikely the ROI on Caribbean real estate would exceed the returns he’d get by investing in the stock market in the states or that the increase in the value would be worth paying the interest on the credit card debt and the mortgage combined. There are likely wiser ways to make that money work. So, if he’s investing wisely over time, he should likely be able to buy a comparable home as a retiree if he wants to.
He could also end up changing his retirement plans if he decides he’d rather stay in the US and be close to his potential grandchildren — and if that happens, it would have been a poor investment to pay for a house that’s costly to keep only to end up not retiring there anyway. Selling now with the chance to rebuy later seems like a much better bet.
In fact, all signs point to the fact that selling the home seems like the best move in this situation and it could be the start of a much more financially secure — and less stressful — future.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
