Pay off credit cards - worth it or not?

[latinvtp]

Hello all,

I have a total credit card debt of about 7K - 4 credit cards. Now, I have some stocks through the company that I work for and I can sell the stock and pay off all of the credit cards, but I am not sure if this is wise. I'm paying about $100 dollars a month on interest. If I sell my stock to pay them off, would I be tax at the end on the stock sale? to the point that it was not worth selling?

Please advice.

Thank you!!
Cheers!

[disneysteve]

The tax isn't what you need to worry about. What matters is what you're earning. What is the interest rate on the credit cards? Chances are it is higher than what the stocks are earning in which case it could make sense to sell the stock and pay off the cards.

However, it probably makes more sense to slash your spending to free up cash to pay off the cards.

Post your budget for us and we can help you find places to trim spending.

[YLTL_Dan]

Welcome to the forum!

At first glance, I would say pay off the credit card debt today, but it would be helpful to know:

1. Do you have an emergency fund?
- starter emergency fund of $1k?
- fully funded emergency fund of 3-6 months?
2. What other debt do you have?

Either way, I would recommend selling the stock. If you don't have $1,000 saved up for a starter emergency fund, use the initial proceeds to fund that. If you do have $1,000 starter emergency fund, use the money to pay off the credit card.

You also need to make sure you don't acquire more debt after you pay off the credit card. Do you have a budget to make sure you don't acquire more debt?

As far as taxes, it depends on how you acquired it. Has the stock gone up in price since you acquired it? If so, you'll probably owe capital gains tax on the profit of it (15% if over one years, 25% if less than one year).

[latinvtp]

First of all, thank you disneysteve and YLTL_Dan for your quick replies. I do have an emergency fund, the stocks I have purchased through the years working with the company (7 years) and the total stock is worth about $17K so I would end up with 10K savings after selling to pay off the credit cards. The interest rate on the credit cards is about 12%. I am not sure about the capital gains, but I can tell you that when employees purcahse the stock, its sold at 15% less than the market value. Its a program that the company has and I took advantage since day one. I put $400 dollars every month to buy the stock. I've been trying to pay them off with my salary alone, but I got very fustrated when I saw the total interest amount charged $100 per month.

Thank you!!!

[Like2Plan]

First of all, thank you disneysteve and YLTL_Dan for your quick replies. I do have an emergency fund, the stocks I have purchased through the years working with the company (7 years) and the total stock is worth about $17K so I would end up with 10K savings after selling to pay off the credit cards. The interest rate on the credit cards is about 12%. I am not sure about the capital gains, but I can tell you that when employees purcahse the stock, its sold at 15% less than the market value. Its a program that the company has and I took advantage since day one. I put $400 dollars every month to buy the stock. I've been trying to pay them off with my salary alone, but I got very fustrated when I saw the total interest amount charged $100 per month.

Thank you!!!

If you have been investing $400.00 (every month?) X 12 months= $4800.00 X 7 years = $33,600.00 so if your stock is only worth $17K on the face of it-- it doesn't appear that you have to worry too much about overall capital gains on your company stock. Have you been tracking your basis?

[YLTL_Dan]

the total stock is worth about $17K so I would end up with 10K savings after selling to pay off the credit cards. The interest rate on the credit cards is about 12%. I am not sure about the capital gains, but I can tell you that when employees purcahse the stock, its sold at 15% less than the market value. Its a program that the company has and I took advantage since day one. I put $400 dollars every month to buy the stock. I've been trying to pay them off with my salary alone, but I got very fustrated when I saw the total interest amount charged $100 per month.

Thank you!!!

My former employer had a similar employee share purchase plan (ESPP). Taxes on the initial 15% discount are usually paid up front - either through receiving fewer shares or paying out of your paycheck. You'll have to pay for any remaining capital gains if the stock price has increased since you bought (it sounds like it would be mostly long term capital gains). If the stock price has decreased, you'll be able to claim capital gains losses of up to $3k/year, which will lower your AGI.

Can't you sell only the amount of stock you need to pay off your debt? If you sell it all and have that big paycheck in front of you , it might be very tempting to spend!

[YLTL_Dan]

Duplicate (I get an error that it didn't post.. so post again.. then see two)

[Hector]

First of all, thank you disneysteve and YLTL_Dan for your quick replies. I do have an emergency fund, the stocks I have purchased through the years working with the company (7 years) and the total stock is worth about $17K so I would end up with 10K savings after selling to pay off the credit cards. The interest rate on the credit cards is about 12%. I am not sure about the capital gains, but I can tell you that when employees purcahse the stock, its sold at 15% less than the market value. Its a program that the company has and I took advantage since day one. I put $400 dollars every month to buy the stock. I've been trying to pay them off with my salary alone, but I got very fustrated when I saw the total interest amount charged $100 per month.

Thank you!!!

Its good that you are taking advantage of this. I would put $400 every month. Because you get it at 15% discount, that $400 will instantaneously become $460. Now I doubt that you(or anyone of us) will make more than 12% on this $460. 12% because this is the interest you are paying to credit card companies. When we factor in capital gain tax, actually you will need to make a lot more than 12% on your stock to break even with 12% interest that you are paying to CC.

I would sell at least 7k worth stocks that I got more than one year ago and would pay off CC. You would have to pay capital gain tax on this proceed. Try saving that money by the end of April next year so that you will have money to pay taxes.