Should I sell stock to pay off debt?
Should I sell stock to pay off debt? I have a well funded 401k and save a small amount every month. I do have a fair amount of stock laying around for a long time worth nearly 15,000. This would pay off all my debt and then some. Would it be wise to sell this stock and be completely out of debt? The reason I ask is, this stock could also be used as a home down payment or emergency fund. I rent now and plan on renting for the near future. I figure the amount saved my being completely out of debt will offset the sale of stock?
First, make sure you have enough money readily available (cash, CDs, sometimes even unused lines of credit) to pay your expenses for 3-6 months (the longer it's likely to take to replace your income, the more you need to have available). You state in your question that you enough money to pay off the credit card debt and you also that you will have some money remaining. I suggest that you as much as you need to pay off the credit cards and then save the rest.
The only investment account you should leave money in when you have a credit card debt balance is your retirement account, such as a 401k or IRA. The reason is simple; you'll end up with more money if you take that money out of the stock market and put it into your debt. With the stock market, you can only reasonably expect to make around 9%-15% per year, based on the historical performance of the market. When you pay down your debt, you are guaranteed to save yourself whatever interest rate you are paying. Therefore, if your choice is maybe 9%-15% gained on the stock market, or paying off your 14%-29% APR credit card debt, go with the guaranteed win and pay off the card.
For more information onthe Bills.com debt help options page.
I hope the information provided helps you Find. Learn. Save.
Did you know?
If you are struggling with debt, you are not alone. According to the NY Federal Reserve total household debt as of Quarter Q4 2023 was $17.503 trillion. Student loan debt was $1.601 trillion and credit card debt was $1.129 trillion.
According to data gathered by Urban.org from a sample of credit reports, about 26% of people in the US have some kind of debt in collections. The median debt in collections is $1,739. Student loans and auto loans are common types of debt. Of people holding student debt, approximately 10% had student loans in collections. The national Auto/Retail debt delinquency rate was 4%.
Collection and delinquency rates vary by state. For example, in Kansas, 16% have student loan debt. Of those holding student loan debt, 8% are in default. Auto/retail loan delinquency rate is 3%.
Avoiding collections isn’t always possible. A sudden loss of employment, death in the family, or sickness can lead to financial hardship. Fortunately, there are many ways to deal with debt including an aggressive payment plan, debt consolidation loan, or a negotiated settlement.