PETE THE PLANNER
QMy husband and I are in our early 60s, and he is disabled and I recently lost my job. I was given some stock years ago, 50 shares of ( an individual stock with a total value of $ 9,600). I owe $ 10,000 in Visa debt and $ 5,000 onmy daughter’s student loan, which has been into default for two years. Should I cash inmy shares and pay off her student loan, which I cosigned for? And then pay the rest onmy Visa? Or pay all of it onmy Visa? I am very proud that I have not had to cash it in, but now I am trying to get out of debt. My credit union just raised my interest rate to 9% due tomy high balance. — MINDY
A situation like this one is challenging, Mindy, because it’s hard to determine what your No. 1 financial priority should be. At the risk of piling on, I’m going to list the issues to make sure you truly understand all the issues at play.
In no particular order, you have a child who defaulted on their student loan payment and left you with the bill, a spouse unable to work due to disability, a $ 10,000 credit- card balance, an involuntary exit from the workforce and what is likely a very strange urge to just retire, despite the fact you can’t do it successfully.
When the world seems to inundate you with all sorts of financial roadblocks, it’s vitally important to separate the problems in order to understand the positive and negative impact of your decisions to rectify some of these problems.
I think the primary issue is whether or when you go back to the workforce. If you’re like the dozens of other people I’ve met in a similar position, you feel as if you’re in career purgatory — not working near retirement age, but not retired. Run from purgatory; it’s not your time yet.
The sooner you get back to work, the sooner you can begin to solve your issues with the preferred method — income. Your problem can be addressed with either income or assets, and you shouldn’t solve your problem with assets if you don’t have to.
Too many people solve financial issues with assets, as opposed to their income. It might seem like a subtle difference, but it’s not. Using your income to pay off your debts results in a net worth increase, while using your assets to pay off your debts results in no net worth change. When in doubt, always choose the path that increases your net worth. In other words, I prefer you find another job and use that income to systematically pay off the debt. Yes, it’s going to cost you some interest to do it this way, but I like the plan better than eliminating your stock, which feels to me like it might be one of your primary assets.
The thought of cashing in the stock, dealing with the tax ramifications and then either eliminating your child’s student loans or partially paying down the $ 10,000 in credit- card debt does not appeal to me at all. The decision does not provide enough relief to the problems you face. You aren’t currently making payments on the student loans, therefore taking them out with your final arrow doesn’t help your cash flow. And depending on how your credit card is structured, partially paying off that debt might not even provide the sort of relief you’re seeking.
I know asking whether you should use stock to pay off debt and being told to get another job isn’t exactly what you had in mind when you wrote me, but short of eliminating some interest, I don’t see how any of your current or future problems are solved by selling your stock.
I don’t have all the info I need about your situation to make this statement, but I’m going to make it anyway — you can’t afford to retire for another 10 years or so. Don’t confuse this with “being able to retire.” That’s different. You can retire now, two years from now when you’re eligible for Social Security retirement or at 65 when you’re Medicare eligible, but you shouldn’t retire until you hit 70 and maximize your Social Security retirement income, given what I know.
If you haven’t already, turn all your focus to getting back into the workforce.
Too many people solve financial issues with assets, as opposed to their income. When in doubt, always choose the path that increases your net worth.