Sell shares to pay off credit card? Advice please

theJenster_2

Hello

I would really appreciate some advice from anyone who has a handle on investments in stocks and shares because I just can't figure this out myself. Perhaps there is no right or wrong, in which case any opinions would be welcomed.

I put some money away in a tracker fund when I was 30 (3 years ago), with the aim of leaving it there until I was 60 and it being my pension. I am self employed. I now have some credit card debt, that I was dribbling away as best I could and was previously on 0% credit cards so wasn't a huge concern about time it was paid off in and been chipping away slowly at it. Not ideal but not horrendous. Now credit is harder to come by I find myself with £3k of my credit card debt now run out of interest free. (All interest free options have been exhausted believe me, I've tried!) The interest on this 3k will now be 18% from this month.

Now, I could pay this off by taking the money from my tracker fund shares.

On the one hand, that's my pension and not for touching. On the other, it seems silly to pay 18% interest when I could just nip it in the bud. What I can not figure out is what the cost of taking £3k out of my shares will be? How can I tell if it will have a huge impact? As at today my shares are worth more than my original sum and any dividends I received. So if I took this action today my selling price for each share would be more than what I bought them for.

I would be aiming to replace the £3k again when I could, but it's not as simple as ensuring I buy shares at less than I sold them for is it? Or is it? I am finding this all quite bewildering and I do not know what move is the best one.

How can I tell if I would be effecting my share pot MORE than the effect of paying 18% interest to know which is the right thing to do?

I know Martin's advice is always get rid of the debt first. Is it that clear cut?

Thank you for any advice you may have.

Lokolo

How much do you have investments?

mr_fishbulb

What is this tracker fund held in - i.e. Stocks & Shares ISA, non-ISA trading account, pension plan?

If it's in a pension plan (which I thought it would have been as you get the pension relief paid on it) then you may not be able to take the money out.

opinions4u

You would find it hard to get somebody recommending you to borrow at 18% with a view to investing the funds.

Get the debt cleared in full (assuming there's no cost to accessing the funds required) and take steps to ensure you don't build up new debt on the credit card.

theJenster_2

Thanks for your replies, it's £22k in a stocks and shares isa, so not an official pension. If I had a more secure income I would look to that but not knowing your monthly income makes it harder to be sure any debt won't spiral. I would feel bad for dipping into what is supposed to be for the future but that seems ridiculous if there is the opportunity to keep things clear. You're right about not building up any more debt, that would be key. I guess I am looking for reassurance that I am doing the right thing tbh.

Loughton_Monkey

Certainly, in the short term, you credit card debt is 'toxic' and should be got rid of. And you should take this as a signal for some very serious budgetting and sensible spending in the future.

As has been mentioned, you seem vague on what your existing investment is. It seems to be 'tracker fund'. But there's a world of difference in the 'wrapper'. If it is truly a pension, then you can't touch it anyway. If it is an ISA, then that's fine, you can withdraw some and probably you should.

If it is neither, and simply a direct investment in funds then you are leaving yourself wide open for Capital Gains tax if you don't 'manage' when you take the profits.

Going forward, you should try to understand exactly what you do have, and also work out how much you are going to need in retirement. Saving for retirement can occur in several forms, but you should consider pensions as the 'backbone' because of the generous tax relief obtainable. ISA's have a place, too, but - directly relevant to your own points - you need discipline not to touch them if possible.

As a very general rule, if you have an established pattern of spending (cost of your lifestyle) then you should check whether or not around 20% or 25% above your spending is going into investments/savings. If not, then you will probably struggle financially in retirement, unless you tune your lifestyle spending to nearer this 80% (roughly) of total income.

N1AK

You've effectively got an asset and liability. The liability has an 18% interest rate, your asset doesn't have a fixed interest rate.

If you think your S&S will earn better than 18%pa until you pay off the debt then leave it. If not pay of the credit card.

In my opinion the best option would be pay off the card. If you're worried about using your 'retirement fund' like that then I'd suggest budgetting to pay the money you would have paid to the CC back into the S&S. Unless you've got especially good shares, or share prices rocket very soon you'll be better off that way.

N1AK

Loughton_Monkey wrote: »

As a very general rule, if you have an established pattern of spending (cost of your lifestyle) then you should check whether or not around 20% or 25% above your spending is going into investments/savings. If not, then you will probably struggle financially in retirement, unless you tune your lifestyle spending to nearer this 80% (roughly) of total income.

I don't intend to disagree, and I'm certain from your post that you've got a better understanding of this issue. What I wish to add is:

I've been advised that, if you start saving for retirement from the moment you start work, 10% of gross income (inc tax, NI etc) would be enough to fund a lifestyle somewhat inline with your lifestyle while working.

That calculation is rather vague, and more would obviously be safer, but I think it provides a clear indication that saving for (a reasonably comfortable and secure) retirement can't be done on the cheap.

opinions4u

N1AK wrote: »

I've been advised that, if you start saving for retirement from the moment you start work, 10% of gross income (inc tax, NI etc) would be enough to fund a lifestyle somewhat inline with your lifestyle while working.

If you save 10% of your income for 40 years, that would, stripping out inflation and investment returns, provide you with a pension of 20% of your income for 20 years.

Is that enough?

I believe the average individual pension contribution is 3% of salary. This great nation is well and truly stuffed at some point in the future.

IronWolf

opinions4u wrote: »

If you save 10% of your income for 40 years, that would, stripping out inflation and investment returns, provide you with a pension of 20% of your income for 20 years.

Is that enough?

I believe the average individual pension contribution is 3% of salary. This great nation is well and truly stuffed at some point in the future.

The employer also puts in 3% usually and its invested to produce a greater return.

Theoretically by retirement you should have no outstanding liabilities, a home and assets for you to live comfortably on, so your income is only needed to provide the necessities of life.

Loughton_Monkey

N1AK wrote: »

I've been advised that, if you start saving for retirement from the moment you start work, 10% of gross income (inc tax, NI etc) would be enough to fund a lifestyle somewhat inline with your lifestyle while working.

I worked for 34 years - and retired early - having (on average) well exceeded 25% of gross income. I have very detailed accounts for every year of my working life (in financial services) and have sufficiently accurate records on pension contributions/values of both myself and [mainly - lucky for me] my employers.

Certainly, in my case, saving only 10% would have got me nowhere near 'full lifestyle' retirement even at age 65, let alone 56.

Of course I have to qualify what I say with two 'caveats':

1. Firstly, we do not have to think purely of pension contributions. My own 25%+ figure includes investments/savings of all types, including ISA's, cash, and property (to the extent I can actually 'realise' the capital in retirement).

2. Secondly, I can foresee there could be a substantial number of 'special cases'. Here, I am thinking, perhaps, of a couple who might have earned [plump for £60K between them - it doesn't matter] and spent their working life paying a large mortgage (on a house that they don't count as 'investment' because they are going to die in the house). They might have had 3 children who cost them a lot. They paid a bit of 'blood money' putting them through Uni, only to find them coming back home and living at home without contributing.....you get the idea.

Well a couple like this earned £60K, but actually, their underlying cost of 'lifestyle' could not have been much more than, say, £30K if that. Everything else went on 'non-lifestyle' spending - the kids. The house. The mortgage. So once the kids have finally moved out, the mortgage is paid, this couple can 'happily' draw £12,000 state pension between them, and get an income of £20K from pensions/savings - which may have only cost 10% of their incomes over the years. Yes, they can (relatively speaking) put their feet up and have a whale of a time.

So I would continue to maintain that up to 25% should be the 'target' and 20% the absolute minimum - but of course possible to shave a bit off to the extent spending is truly non repeatable and in no way can be considered 'lifestyle' cost.

I would underline it by saying that it is generally taken as 'fact' that to provide a person with a 2/3rd final salary pension at age 65 will definitely have cost between 20% and 25% of gross earnings (opinions differ as to exact amount). Shave just 1% per annum off this type of figure and compound that for 40 years and see the resulting lower figure of pension. Frightening!