That's probably a far better course of action. It only really makes sense to put up alts as collateral if you have a strong belief that the price will rise far higher than the amount of interest you are obligated to pay on a loan.

If there is a doubt on where the price is headed, you are far better off taking your chances and selling rather than locking in a certain loss on the interest. That way you can buy back lower when you reacquire your BTC and you don't have to pay anyone any interest.

From what I've seen this year, people usually get wrecked by putting up alts as collateral. They are more than likely to slide downwards than increase. And if they slide down too much you get margin called, and liquidated if you can't top up your collateral to a sufficient level.