If you are trapped behind mountains of debt with no end in sight, selling investments acquired in previous years can provide you an opportunity to gain control of your finances.
From stocks to bonds to real estate, investments intended for the future can be used to fix a current financial hardship. It is important to note, however, that cashing in on these investments may result in higher taxes or early withdrawal penalties.
In general, home mortgages and student loans funded by Sallie Mae are considered “good debt”. A home can increase in value, and student loans are an investment in an education, which will hopefully increase earning power. Any debt associated with a car is normally viewed as acceptable, but “bad debt” arises from excessive credit card use.
If you have only been making the minimum monthly payment on your credit card with the highest interest rate, paying off that balance is now your main priority. On high interest rate credit cards, more of your monthly payment goes towards the interest, rather than the principal. Over a long time period, only paying the required minimum can result in interest charges costing more than the item(s) you originally purchased.
Depending on the return of your investment, you may not be able to fully pay off your credit card with the highest interest rate. If that is the case, determine which of your credit cards has the lowest balance, and pay off that amount. Once that debt is paid, limit your remaining credit card(s) to emergency use only, and pay more than the monthly minimum to help erase the larger debt as quickly as possible.
The selling of an investment to get out of debt will only achieve its intended purpose with proper planning, a commitment to responsible spending, and the sincere desire to become debt free. Everybody has a different reason for why they need to sell an asset to cover up their debts. The important part is making sounds financial decisions as this year winds down and a new one begins.
Paying off your debt and piling on more debt is not a full proof solution in any year. Let this year be the one that lets you break away from your financial burdens of yesterday.