stocks or pay off credit card?

**l8eebugg** · 07-04-2011, 06:43 PM

I have some stocks that I buy monthly in the form of DRIPs. They go up and down ech month so I am betting on averages. Question is I could sell out one or two and totally pay off a credit card. I know that seems to make sense..but is it wise to cash out now? I do not even come close to matching dividends and the monthly interest. The stocks are sort of emergency fund to date. Any thoughts?

**Telephus44** · 07-04-2011, 07:32 PM

I think it would depend on how much money your talking about. $1,000? $10,000? $100,000? How much is the CC balance? How fast can you pay them off without touching the DRIP's? Also, how long have you held the stock, so are you paying long term or short term capital gains?

I also have some DRIP's.

**l8eebugg** · 07-04-2011, 07:39 PM

Been investing small amount monthly for years. Talking about 3,000. Would take me a couple of years to pay off CC.

**khaski** · 07-05-2011, 09:10 AM

Not clear on your #s (interest rate, cost to sell stocks, what you put in etc) but I think it would probably make sense to do to get rid of that debt. Just wanted to point out- using stocks as an EF is not a great idea- sure, when times are good and stocks are up, you make way more $ than you would in a savings account, but the flip side is risking the stocks are way down when you need the $ for an emergency- stocks are too volatile to use as an EF!

**l8eebugg** · 07-05-2011, 09:40 AM

Update...Drips are part of my emergency fund. I do have Emergency fund in bank also. Stocks are Drips...use cost averaging to make money over time. Only invest small amount a month..growth (buying) rate slow, but it does add up over the years. Maybe I will cash in one..mmmm.

**mndtrp** · 07-05-2011, 07:21 PM

If you aren't coming close to matching the interest charges, I would pay off the debt. The only way I wouldn't, is if there is some sort of compounding available to the stocks, that would require your current $3000. I don't really see how that would apply here, so I would pay off the debt, then reinvest.

**a.nonymous** · 07-06-2011, 04:05 AM

I'd cash in the stocks and pay off the debt. In fact, that is exactly what we have done when we started following the DR baby steps.

Main reasons:
1) Rate of return on stocks, even with the cost averaging effect in play, will have a hard time keeping up with credit card debt interest rates

2) Stocks are not a good vehicle for an emergency fund. The times when the chances of needing the extra funds are the highest, your investments will also have a higher probability of being considerably down (in the short term)

3) Ask the reverse question: If you had no debt, would you take out $3000, albeit over time, on credit cards to invest into the stock market?

Since we have cashed out our investments in 2009, I've been itching to get back to investing in the stock market. However, we want to wait until our emergency fund is fully funded. Actually, that gives me some extra motivation to push hard towards bringing in as well as saving more so we can finally get back to investing.

**ladytoysdream** · 07-06-2011, 06:18 AM

Hi.
If what you are making on the stocks for interest is less than what you are paying out for interest on the credit card, then I would sell off the stocks to pay the credit card off.

You mention that you have a EF in place. If not big enough, then use some of the stock money to fund that also.
Usually when there is a need for a EF, you should be able to get to that money quickly. Not sure how long it takes to sell off stocks and get the money in your hand, but I would think it would take a bit more of time. And there are some fees when you sell, correct ?

**l8eebugg** · 07-06-2011, 06:33 AM

a/nonymous...Question 3 DId it! I know it is the smart move just hard to do since it is the one thing I have been consistent with for years. Having one or two less CC will feel good also! I'll check the current price and cash out this month or next. Then start all over.
THanks so much for the time and advice to all of you.

**l8eebugg** · 07-06-2011, 06:34 AM

Thanks so much for your advice and time. I have decided to cash out and start again. When I don't have a couple of CC payments I am sure I will feel better than when I read the monthly stock report.

**Greebo** · 07-11-2011, 08:35 AM

Good decision - I would have asked you, would you borrow $3,000 to buy these stocks - because keeping them would amount to the same thing.

**Frugal Sooner** · 07-11-2011, 10:31 AM

There are a couple of questions I would ask before advising someone to do what you're considering.

1. Based on personal experience, it is HARD to save up $$ (thanks, Captain Obvious!). And when you have accumulated a nice pile, I'm VERY hesitant to advise someone to use it to pay off debts (if you're already making good progress paying it off with a consistent payment plan). Yes, I understand you're paying interest on one and making interest on the other, and one may be more than the other. I really don't take that into consideration, compared to wiping out that stash! I assume you're no longer using those CC's for ANY reason, and haven't added a single penny to their balances since you began the decision to get out of debt? If that's the case, those balances will come down, with discipline & focus. If you're still investing new $$ in the stocks, you might consider directing it toward the CC balances instead of selling your stock. Then they will come down even faster.
Also, is there anything you can do without and use to attack that CC balance? (garage sale, cable tv, newspapers, magazine, Starbucks, etc).

2. Having said this, the ONLY reason I would consider using savings to pay off CC balance is if you've already cut up all CC's and sworn an oath to NEVER use one again! I know that sounds dramatic, but I meant it to! haha
I've seen many people take a windfall or long term savings and paid off CC's, only to fall back into old habits, succomb to temptation and start using them again. Before long, their balance is right where it was, except now they have no more savings. So if this truly is the end of using CC's and you really feel it best to pay it off with your accumulated savings, make sure it's the LAST time; and commit now to rolling what you had been paying on that CC onto your other CC bill to pay it off faster. If that payment gets sucked back into the pot it will be harder to roll it over, so don't let it get away from you.

But I probably wouldn't do it. Those savings are your best defense against future debt, and you never know when it's gonna rain!
Just my .02 and hope it helps!