Should I sell my stock to pay off my credit cards and vehicle?
I currently have about $40,000 invested n the stock market and a little over $6,000 in credit card debt. I also have a truck payment of $425 month and still owe about $28,000. My mortgage sits around $79,000, with a home value of around $300,000. Should I sell enough stock to pay off the credit cards and/or the truck?
Yes you should likely sell enough stocks to pay off the credit card debt.
Then take the money you would be putting towards the credit cards each month- contribute back into your investment account to rebuild your savings there.
Unless you have a high interest rate I don't see a big benefit to paying off the truck or mortgage from your investment account.
Assuming the investments are held in a taxable brokerage account (and not an IRA, for example), I'd recommend selling them to pay off your debt and build an emergency fund (assuming you don't have one already). If you have any long-term capital gains, they will be taxed at a preferential rate. Once you’ve funded your emergency fund, then begin to save for retirement. Use low-cost index funds that are widely diversified.
If you’re unsure about selling your current investments, ask yourself this question: If I had no debt (other than the mortgage), would I borrow $34,000 to put into investments? Most people would say no. If you do as well, then it makes sense to pay off the debt!
Thanks for your question and contact me if I can be of assistance.
The answer to this is going to depend on the type of account your stock is invested in, your tax situation, and other important factors. Below are the three most likely account types and how to consider your choice in each circumstance. Realize, though, that your situation is unique, and you should consider the rest of your financial picture before deciding.
If the stock is in a traditional retirement account or another tax-deferred account, the fees and taxes on the withdrawal will likely cost you more than the cost of the interest you are hoping to save. If this is the case, you would likely be in a better financial position by leaving the funds invested and making a determined effort to pay down your debt with your monthly cash flow.
If the funds are in a Roth Account, you can remove the basis from the account penalty and tax-free. The basis is generally the amount your originally contributed. Roth conversions, however, do not count toward this rule. You will want to talk with your CPA or a fiduciary and fee-only financial advisor to help you with this as it can be complicated.
If the funds are in a taxable brokerage account, then withdrawing them to pay the debt may be advantageous. The credit card debt is an ideal candidate for paying off in this circumstance because of the high interest rates credit card companies charge. It is extremely unlikely any investment returns in stock will outpace the interest rates on a credit card. For your truck, if you have a low interest rate, you may want to continue paying the monthly payment and leave the remainder invested. You would owe taxes on any capital gains when you sell the stock, so you should still talk with a tax advisor or financial advisor to understand the tax liability.