Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It only takes a minute to sign up.
Sign up to join this community
The question is obvious. I have debt, not in excess, but I have. And I have some stocks in the market. Should I use the stock money to pay my debt, and be debt free. The debt is not high interest. Just a few loans: car loan 4%, student loan 2.75%, misc loan 10% (low balance)
Ideas?
Simply put, the interest you're paying on your loans is eating into any gains you have in the stock market. So, figure out how much you're paying in interest and consider the feasibility of paying off some of the loan. Also figure in if you would be selling the stock at a profit or a loss.
Generally speaking, a home loan is typically long-term, with a high principal. I believe the consensus is that it is typically not worth paying down extra on it. A car loan, though, is much shorter term, with a lower principal. It may be worth it to pay that down.
I would certainly consider paying down the loan with 10% interest, even without running any numbers.
What about doing this without selling stock? The reason I suggest that is that you should not sell the stock unless you truly need the money or for some material reason(s) related to the company, the market, etc. (Of course, one other reason would be to cut losses.)
Unless I was looking to sell some stock anyway, I would try other ways to come up with the money to pay down the highest interest loan, at least. If you are thinking of selling stock to pay down debt, definitely run the numbers.
Put yourself in this position - if you had no debts and no investments, would you borrow money at those rates to invest in the stock market? If no, then pay off the debts. If yes, then keep them.
I'd get rid of the debt with the stock money. Stocks are at a high for the year. Get out while the getting's good and get your financial house in order.
Obviously, you should not buy stock when the option is to pay down your debt. However, your question is different. Should you sell to reduce debt. That really depends on your personal situation. If you were planning to sell the stock anyway, go ahead and reduce your loans. Check out how the stock is doing and what the perspectives are. If the stock looks like it's going down, sell...
Do you have savings? Unless you do, I should advise to sell the stock at any rate. If you do have savings, are they earning you more (in percentage) than your loans? If they are, keep them...
Depends from your general overall situation, but for what we know i would say:
Definetely get rid of the high interest loan (10%) since average stocks return is not as high.
Not sell shares for the car loan, the market is not so high (the s&p500 is just above the 200dd moing average). But if you have extra savings you should emduce this debt, since average savings rate is lower than 4%
Keep the student loan for the moment.
I'm surprised no one has picked up on this, but the student loan is an exception to the rule. It's inflation bound (for now), you only have to pay it back as a percentage of your salary if you earn over £15k (11% on any amount over that I believe), you don't have to pay it if you lose your job, and it doesn't affect your ability to get credit (except that your repayments will be taken into account).
My advice, which is slightly different to the above, is: if you have any shares that have lost more than 10% since you bought them and aren't currently recovering, sell them and pay off your debts with those. The rest is down to you - are they making more than 10% a year? If they are, don't sell them. If your dividends are covering your payments, carry on as you are. Otherwise it's down to you.
