We tried to sell our home two years ago, and although the house was on the market for more than a year, we didn't get any offers. The real estate agent asked us repeatedly to lower our asking price, but we were asking only the amount that we still owed on the home — we couldn't afford to "pay" to sell our house. We need to move in the spring, but the house is going to be an issue in this depressed market. Like many Americans, right now we owe more on our house than it's worth. Which is the lesser of two evils: a short sale or walking away? – J.W., location withheld

If you have to choose between the two, go for the short sale; it will crater your credit less. "Both a short sale and a foreclosure will impact your credit score," says Clarissa Hobson, a financial planner in Colorado Springs. "But a short sale will be a shorter-term impact." By "shorter-term," she means about three years, versus seven to 10 from a foreclosure.

That said, before you do anything, you should definitely talk to a HUD-approved counseling agency about your options. (You can find one here.) For one thing, your lender has to agree to a short sale. For another, a short sale is more complicated than a foreclosure, so it helps to have someone walk you through the process, such as a HUD counselor and a licensed realtor. "With the complexity and the paperwork involved, you're definitely going to need some assistance," Hobson says.

You do have other options, however. You could wait out the housing market by renting out your home instead, or setting up a rent-to-own situation. "That might get someone into the house, paying rent and defraying some of those costs, without having to go to the lengths of a short sale or foreclosure," Hobson says.

If you take the route of a short sale or foreclosure, say hello to the rental market in your new city. Your damaged credit will make it difficult for you to land a new mortgage for a few years.

— Kate Ashford

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