Pay off debt: sell stock or roll into mortgage?

drake22

Hi,
I am married with one child - my wife doesn't work. We have over 60k in credit card/home equity debt. Sending my wife back to work isn't a real possibility and I can't find a 2nd job that would be flexible enough to allow for the extra time I am sometimes required to put in at my current job. I also can't seem to find something that she can do out of the house.

Half of the debt is on low-fixed-interest credit cards - nothing over 11%, some under 3%. The other half is on a home equity loan at prime interest - currently 7%. The problem is the amount of payments we have to make each month is making it hard to get ahead.

I have stock grants I could exercise - $25k after taxes if I sold every share. Our house has appreciated, of course, so there's about $125k between our current mortgage and the estimated selling price.

What would be my best option here - sell stock or roll the debt into a refinancing of the mortgage (currently at 6% I think)? Should I try and pay off even those cards with less than 3% fixed-for-life interest? I'm afraid that if I don't consolidate all of them, my budget will still spend more than I make - thereby increasing my debt... I should mention we have NO savings whatsoever - I stopped contributing to my 401k when the debt began...

Any thoughts or advice on this?
Thanks!

Xbigman

By home equity loan you mean a 2nd mortgage? IE secured debt.

By stock grants do you mean shares in one company IE your employer? Shares in one company is a very volatile form of investment and I would nearly always advise you to dispose of the shares and clear debt, but you need to make a decision based on your own situation. Is your job bomb proof, is the share price bomb proof, is the company a takeover target (and if it is how bomb proof is your job then). What sort of person you are is also a consideration. If you are likely to get bitter and twisted should the shares rise in value then you might want to hang on to them. However, you have a family so your priority should be to clear your debts and then either save or reduce the mortgage. One thing you should never do is increase your mortgage. This is securing the debts against your home and is to be avoided at all costs. If it was me I'd sell the shares ASAP.

How did the debts arise? Running credit cards up is usually a bad sign. You have done life of balance transfers already so I am assuming this has been going on some time and is a sign of an ongoing overspend on your part. This is something that must be addressed as a matter of urgency.
Also, the home loan, was it to clear other debt? If it was then re-read this paragraph but its now much more important that you sort this out.
Regards



X

odLott

I think you should sell your stock options ASAP. That's almost 50% of your debt wiped clean, no questions asked. Don't feel too bad if the stock goes up after you sell it. At this point it's about surviving, not speculating.

You priority should be to repay the home equity loan since it is secured on your property. You have a bit more flexibility with credit cards, so although these are important and you should keep up the repayments, they are less of a priority than to have a roof over your family's head.

Hope this helps.

Good luck

Fairwinds

Also, if yor mortgage is currently at 6%+, I would see if you can improve that ( depending on penalties etc). You should be able to get something at around 4.5% .

P.S How much did the shares make last year (not that that's any guarantee).

citygal

I agree sell the stocks to cover your debt- that's the most important priority right now. There will be other opportunities in the future. Right now you have to think of your debt- the less you have the better your overall situation.... Good luck

jonesMUFCforever

Take care when selling stock or you could face a massive Capital Gains Tax bill!!!

drake22

Wow - thanks for the advice and the well-wishes!! I'm happy that everyone had the same idea on the course of action...

Originally, the home equity loan was to cover *some* actually work that needed to be done on the house, but we got extra as a safety net for some other expenses that we knew might come up soon. They did, so we ended up using the full amount of the loan.

We sat down today in front of MS Money and entered our woeful info and came up with a reasonable budget to go with. We'll sell stock which should leave us with one credit card (at 1.9% fixed) and the home equity loan which - as you noted - is more important so we're putting more $$ towards paying it down first. On paper, the budget seems to allow for us to put a tiny bit aside for those unexpected expenses like car repairs - but we'll see if we actually have those funds available.

I found out the mortgage is at 5.75% so I will make some calls this week to see how much lower we can get. Oh - and I will definitely be calling E-Trade before I sell the stock to ask about the capital gains tax. Boy - wouldn't that be an unwelcome suprise later on....

Again - we both thank you all for the guidance!

Xbigman

Those low life of balance cards are quite valuable to you right now so make sure to pay them off last. I think you already know this so sorry to restate, but it is important. If you have any sort of overdraft that is a priority too unless its 0%.

CGT. There is a yearly limit and the tax year ends in april, so you might want to split up the sale into two parts one now and one in April. I'm not an expert so try the investments board with a separate thread just asking about the best way to sell the shares.
Regards



X

Spendless

May I ask with you using the $$ sign if you are in a different country to the U.K? it used to be the case in America/Canada that the mortgage rate you bought your house at was the same for the life of the mortgage. I don't know if this is still the case, but was thinking people might be offering advise which is not possible to do in another country.:)