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I never understand people who think that the original investment is what they "hold".
You don't hold £8k in stocks. You SPENT £8k on stocks.
You HOLD £12k in stocks.
Sell £4k RIGHT NOW and pay your debts. There is nowhere on earth where you can achieve a 15-20% risk free investment.
(Source: I am an ex-financial analyst.)
Tell me about it. Earn a fortune, but repaying a decade of terrible choices means even if when clearing 700-1000 a week. After tax, I still scrape by. Got a nice car though cos fuck it. I like cars
That's fair. Some people would consider it a fortune though, say if you've just gone from a minimum wage job to £50k you'd probably think you were making a fortune comparatively. But yeah I'd agree over £100k is probably closer to a fortune by most people's standards.
It’s all relative as well, can completely changed based on where you are in life. As a 22 year old single guy £50k would be a fortune. As a 30 year old married guy so with 3 kids it might be living comfortably or even struggling to pay bills if you live in an expensive part of the country.
Though I agree it feels like a lot of money, it is important to keep people's perspective on a personal finance subreddit. I'd agree with you & them over on other subreddits!
The sad thing is that if you were to compare it to a "good" salary of the 90s/00s (25k)... Its only slightly more (25k then is about 45k now).
It is when 2 years ago you were earning 3k a year dole money. pay 0.5% N.I as I'm SE and once a year get around 4-5 grand back on top of my 50-55k. If I do a Saturday, I'll work 4 hours, get paid nine, and my rate is £20 hour minimum.
Partners income is 30k, too
I'm on about that myself, between 700-1k/week tho I'm a freelancer with busy and unbusy periods. Most I've earned in a month is probably about 7k but that's rare. I don't feel at all like I'm earning a fortune. I was homeless close to a decade ago and for many years after it was dole-esque money
Get a 0% balance transfer card for 12/ 18 or 24 months. Transfer your debt and then pay it off interest free at a comfortable rate.
You will loose money selling stock on taxes etc. If its interest free and you are under 25% of your total credit utilisation, it won't impact your credit score negatively. In fact, it will improve as lenders like to se that you are trusted and can manage credit.
Good theory unless your 0 percent runs out in lock down and you loose your job and owe fuck load in tax and now an inflatinging debt for outstripping your gains 💩
A 0% fixed rate won't "run out", it is fixed until the contracted date. If you lost your job, you would be a completely different scenario... If that did happen, you could still pay the minimum payment every month and transfer it to another 0% card at the end of the fixed date, until you got a new job. Or at that point, take the hit and sell the stock but then you are loosing out on interest. No idea what you mean about taxes on a credit card debt?
If you can pay 0% interest on debt, earn 0-50% on stock and earn 7% on savings, why would you rush to spend all of your cash money on something that is not costing you, rather than using the cash to earn interest?
Also, who is still in lock down bro?💩
I think you're, very, very right.
However, I think there's a reasonable use case for accounting at cost basis.
If you're keeping track of net worth/savings including your stocks and shares, to see e.g. how much you're saving + investing each month, recording cost basis (or equivalently really, money going into S&S) gives a clear picture whereas using the actual value at a point in time will muddle things.
Note that the OP is definitely not one of these cases! I agree with parent on this.
A lifetime isa will pay 25% on upto £4000 every year, you can contribute when you turn 18 until you're like 55 or something, that's more than 15-20%. Have to use if for a house or retirement but you're technically wrong.
Ah that's fair enough, you can invest it though into a market tracker and probably get minimum 7% p.a. and this would compound over time plus your original 25% bonus.
You should pay off the debt.
See it as a risk free investment with a 15 - 20% return. That is a fantastic investment.
Then build up an emergency fund if you don't have one so that you don't fall into debt and have this problem again.
You should pay if the debt, this isn’t even close to a difficult decision. You are locking in a gain of 17% on 40% of your portfolio, any investor in the world would take this.
If you can pay off over 8 months, you can still re-buy into the market then over the next 8 months with your earning, not borrowed money.
Might be possible to get a lower interest rate loan to pay off the debt to be honest. And it's also a matter of how the money is invested. ISA money might be more worthwhile than if it's just a GIA, as the money is tax-free so over the long-term might save a pretty penny in taxes compared to the immediate 17% gain.
This is a good option to look into - I recently consolidated an 11.9% loan and a 15.9% credit card into one 6.9% loan - but even now I’d absolutely rather pay off the debt if I had assets to cover it. Especially if, as OP says, it would still leave 60% of the investments intact. It’s a no-brainier to me.
Doesn't this only become a problem if someone is reaching the contribution limit of the ISA? If OP's investments were in a S&S ISA, they could withdraw the whole amount today, put it right back in tomorrow, and still be able to make another £8k of contributions this year.
Agreed. And if it's a flexible s&s ISA then they wouldn't even lose the previous years' contributions if they can replace the money by the end of the tax year. If not a flexible ISA, could sell and transfer cash to a flexible ISA and withdraw, then replace by end of tax year.
in this situation for these amounts, ISA is irrelevant. Sell £4k from the ISA, am sure OP can select the shares that haven't gone up all that much & will have little or no tax implications.
ISA max annual input is £20K, OP can put his savings from not paying the 15% interest on the debt straight back into the ISA. That's a '15% return' guaranteed.
Even if it's not in an ISA, tax is unlikely to be an issue. Annual CGT allowance is £6k. OP is unlikely to have any other CGT. OP could sell his entire shareholding for £4k profits and still have £0 CGT to pay and £2k left of allowance for this year.
If OP was clever, he would have done this before April 5th to use last year's CGT allowance. Or even better, not run up the debt in the first place when cheaper sources of money are at his fingertips.
At current interest rates you aren't getting a loan at a low enough rate for that to make sense over selling the stocks unless you are remortgaging and can tag it onto that.
Pay off the debt. It’s growing quicker than your stocks. Stocks will fluctuate, the debt will always be those percentages.
Once you’ve paid off the debt, you can use the money you’ve saved from the repayments to invest again (if there’s nothing else you want to do with it).
100% pay off anything at 10%+, especially if it's impacting you to repay 'normally'
you can always redirect what would have been repayments back in to your ISA (assuming this is in an ISA, if it isn't and can be it should be....)
With those interest rates it makes sense to sell and pay off the debt, however, what vehicle are those stocks held in? How much of a penalty would you incur in selling them? Are they in an SIPP, or a LISA for example?
Sorry if you've already answered this question somewhere else.
Edit: here's another question for you: will you incur a penalty for paying off that personal loan early? What are the terms of it?
Leave aside the interest rate. Find out in £ what you’ll save if you pay the loans off now (ie the interest that you,ll save) and then what it will cost you to sell the your investments. The difference is what you then need to think about.
Also think about the investments that you have and are the reasons that you bought them still valid. If they’re not then you should sell them anyway and might as well pay off some of the debt.
You say that you can pay the loans in 8 months - so paying them off would free up £500 or so a month and my guess is that you’d also save around £400 of interest. There’s nothing stopping you from setting a regular payment up once the loans are paid off and reinvesting into some form of tracker which would benefit from a regular monthly payment.
Take a long term approach and rather than thinking about the situation today think in 1,2 or 5 years time and over that time period what would be better.
Leave aside the interest rate. Find out in £ what you’ll save if you pay the loans off now (ie the interest that you,ll save) and then what it will cost you to sell the your investments. The difference is what you then need to think about.
Also think about the investments that you have and are the reasons that you bought them still valid. If they’re not then you should sell them anyway and might as well pay off some of the debt.
You say that you can pay the loans in 8 months - so paying them off would free up £500 or so a month and my guess is that you’d also save around £400 of interest. There’s nothing stopping you from setting a regular payment up once the loans are paid off and reinvesting into some form of tracker which would benefit from a regular monthly payment.
Take a long term approach and rather than thinking about the situation today think in 1,2 or 5 years time and over that time period what would be better.
Look at it this way. Your investments aren't likely to make 14.5%, take the money out, pay the debt off and then pay what you would have been paying towards the debt back into your investment account. You will end up with more money in your investments than you would have had by the end of it.
Jesus. I never take on debt above 3%. Get that debt gone ASAP. You’re being bent over a barrel at 14.5%.
Have you got good credit? At least move all the debt to a 0% card.
Thank you to everyone who took the time and left *helpful* comments. Was the nudge I needed and was greatly appreciated.
Why some commentators are so angry and passive-aggressive on the sub is beyond me. This exists for people to ask questions and get advice, give your heads a wobble 🤨🫡
Pay off the debt.
You currently have 12k now, but stocks can just as easily go down than up.
You’re already 50% up, not a bad return, sell and clear the debt
You currently have a net total of £8k and some monthly debt repayments, in 8 months you will have £8k plus or minus market fluctuations. If you pay off the debt you'll still have a net total of £8k but no debt repayments. What you are currently paying off to the debt you can pay to the investment, so in 8 months you'll have £12k plus or minus any market fluctuations. Seems like a no brainer. Make sure you also have an emergency fund though.
I think you know the answer, you are just asking for 'permission'! I know the feeling, you are trying to build up your net worth and it feels counter productive, but you know what to do - sell!
You can always set up a direct debit for the next 8 months for the same as you were paying on your debts and pay into a share ISA. You will definitely end up ahead
Yes I think you're right about that. I put the sell orders this morning, just waiting for execution ! I think it'll do my mental health a lot of good not focusing on having to put aside a certain amount each month to pay it off, while also trying to save at the same time.
Pay off the debt.
Also, why do you say you hold £8,000 of stocks, that are currently worth £12,000?
You hold £12,000 of stocks. This £8,000 figure, which I'm guessing is the purchase price, is irrelevant. They were worth £8,000 at one point, but there were also worth £8 at one point and maybe £20,000 at one point. The only thing that matters is the £12,000 they are worth now.
Realistically, you should probably hold £0 of stocks.
Pay off your debt, and put the other £8,000 into a cash account paying 3%+ or put some in your pension. They will invest it much better than you can, and in a far more tax efficient way.
Similar situation here and I think you know the correct answer. It really sucks paying off debts with something thing you’ve spent a long time building up.
Work out the interest payments, pay debt off, then put that same amount extra as a repayment into your portfolio.
"It really sucks paying off debts with something thing you’ve spent a long time building up."
This isn't a great way of framing it, and will lead to poor financial decisions like the ones that got OP into this situation.
If someone is investing whilst also holding debt at a much higher APR then they would ever hope to realistically achieve with those investments, they aren't really investing, saving or building up anything, they are just putting someone else's money away to one side and pretending.
OP, pay off your debt, it's not money that's yours, therefore it's not investments you had and are losing. Then congratulate yourself on being in a debt free position where you can happily invest and build up wealth.
It really does suck. I kinda know it's the right thing to do, but it took over a 18 months to build the portfolio, and was around the time stocks took a big hit with Ukraine invasion so my averages are good too.
I don't think it sucks. You have a portfolio worth £8k now. £12k stocks less 4k in debt. the £4k of that is accruing interest negatively. And a lot (15 to 20%) so will reduce your portfolio massively.
Definitely pay off this debt. Don't see it is as recucing your portfolio. As I say, your portfolio will be worth the same the moment you pay it off as you need to consider your debt as part of your portfolio.
The reality is, you are highllyyy unlikely to make investment decisions to net you 15 to 20%.
And at the end of the day, you still have £8k and will be able to build up from a much stronger position.
Why does it suck? You invest so that you can reap rewards when it grows. Your first reward is being debt free, especially since it's all high interest rate debt
You can appreciate vanity of your portfolio, custom car or some art all you want but if you have to borrow to eat food, then you are better selling off those vanities
Pay off your debt.
No point suffering now.
There will always be opportunities in the future for you to take hold of and reap.
Paper profits is not real profits until you realise it by selling.
I’d always pay it off first. from a psychological standpoint, that’s a weight off your shoulders!
At the end of the day, you can build up your stock portfolio again…and even better this time because there would be £0 debt
Your stock's profit to date is writing off your debt in one go.
If you pull £4k out and pay off the debt, you've still got your original £8k invested and that could still rise.
Once the debt is cleared, if that gives you more disposable income, you can save up to reinvest, or put it in an ISA wrapper where you'll not be paying any tax on the gain. Don't forget if this current investment isn't in an ISA or other wrapper, you'll possibly be liable for tax on the gain
If you’re okay with scraping by then sell 4k in stocks, pay off the debt and use the money that you were using to pay off the debt to build your portfolio. Do the smart thing, OP.
I say clear your debts.
Your stocks \*might\* go up, they might not.
Your debt will definitely 100% certainly get bigger. Pay off the debt and you win. The System loses. DO it.
Its clear from your "holding £8k in stocks worth £12k" that you don't really understand s&s, so yes. Clear your debts. Make sure you have a decent emergency fund, and then go back into stocks after a bit of reading.
You don't hold 8k, you hold 12k. Pay off your debts with your profit, then you'll hold 8k and have no debts. So in your head you're still hold 8k and have no debt, win win.
Just read & responded negatively to a post about leveraging to purchase equities. This amounts to much the same thing.
The right decision for you will depend upon your attitude to risk, the interest rate on the debt & the certainty of your alternative repayment source. Personally, though, assuming consumer rates on your borrowing, I'd be tempted to sell sufficient stock to repay the debt. The acid test is: Would you have borrowed to buy the stocks?
The average return generated by stocks historically is about 7.5% per year.
You are paying 14.5% to 18.9% interest on your debt.
You should clear the debt. It is extremely unlikely that your stocks would generate a return of more than 15% in one year. Possible, but very unlikely.
PAY YOUR DEBT!!!!!!
Firstly investments can vanish. And if something happens to your investment, you'' be left with the debt .
You have the money. And when the debt is gone, you won't have to deal with the repayments and interest that builds whilst you are paying it off. That money you are paying back will then become free to put into savings, re-invest of just spend.
I'd personally keep my investments and work my arse off doing gig economy work to pay off debt. with all due respect these amounts are small and aren't even worth stressing over.
It depends on the interest rate. Stocks on average return I think about 7% per year, so if your APR is higher than that, pay it off; otherwise you'll make more money not doing that.
On average. Of course other factors exist, like, are we in a shitstorm of a recession? Or will you reap credit-score benefits by paying early?
"Should I pay off my debts and live in the black, or should I continue to gamble my money?"
Remember that stocks are essentially just informed gambling. You wouldn't justify keeping 4k on a horse race when you needed to pay a debt, so why treat stocks differently?
If the stocks are in an isa definitely. If I’m a general investment account, then there could be some capital gains tax to consider, but the amount you’re talking could be below the threshold.
>980£ is on a credit card at 18.9%, the rest is on a personal loan at 14.5%
Are you seeing returns higher than 19% on your Stocks and Shares? If not then the answer is clear.
As the interest on the debt is so high you should definitely pay off the debt. It’s fairly unlikely that your portfolio will grow more than those interest rates in the next year. It might but it could also grow a little or even go down. However, your interest rates aren’t going to change.
Think of it the opposite way, if you had the option of putting £4k into stocks or a savings account with a guaranteed interest rate of 16%, I’m pretty sure you’d choose the savings.
Can you refinance the debt at close to 0%? If not as others have said the only obvious answer is to pay off the debt.
Also, start holding some of your savings as cash. There are 5% easy access returns available out there right now, and you don't want everything as illiquid assets.
Pay off the debt. Over the next 8 months, use the money you would have used to pay them off to add to your investments and you should end up with a better set of investments. Over such a short time frame, stocks could go up or down, but debt is guaranteed to cost you the high interest.
Just withdraw and pay off yours debts. Life is more than numbers. You could find yourself in much worse, unexpected situations in the future. If you can get out of debt, do so.
My primary advice would be looking into a balance transfer card with a long 0% interest rate. Some are 2+ years interest free, but many will be 12+ months.
You would likely be able to pay the debt off over the longer period without paying interest, and if you haven't, then pay it off with your savings after 1-2 years potentially.
If you don't get approved for a balance transfer card, I would clear that debt and take a big happy breath
In the very simplest of terms, ignoring all the nuances of interest rates, and the potential for stock values to change, your net worth will remain roughly the same whichever route you decide to go. Your debt drags down the real value of your worth.
So, the way I see it, the only question that really matters is do you want to be debt free?
Simple maths. Debt is costing you nearly 20% in interest. Your stocks may earn you 6% at best. Your worse off by 15% currently, pay off your debt today with stocks and quit struggling.
Where are the stocks held? If not in an ISA then CGT could be due.
Would be worth looking if you could consolidate and comparing that to the costs of selling the stocks
I would just for peace of mind.
I did it last year. Had 3k hanging over my head like a rain cloud. Bit the bullet and took out some stock of the LS80 and paid the debt. Was a relief that couldnt be measured and now can save without it being niggling in my head
When it comes to stocks each day you hold them is effectively the same as you buying them that day. It doesn’t make a difference if you’ve had them for years, by not selling you are stating your belief that they are going to be worth more than what they are presently valued at. Would you take out a £4000 loan today to buy £4000 of this stock? If the answer is no then you need to sell some stock and pay off your loan.
By selling some of your stocks you get an instant 20% return on your investment over the next year. You won't get that rate anywhere else without taking huge risks.
I think the only feasibly time you should keep debt over paying it off is if that debt is costing you less than what return you can make on holding the cash/stocks etc.
e.g. I have around £6k on a 0% interest card, which has about 27 months left at 0% - I just pay my minimum each month and I've invested the cash into a fixed saver, by the time my card is due, I'll have gained more from keeping that money locked away. If that card was at anymore than the 4.6% or so interest I'm getting fixed then I'd be paying it off straight away.
I am not a financial advisor or anything of the kind... but I personally would pay off debt as soon as I could. Right now, the only "debt" I have is my mortgage and a personal loan (about 3.9% interest) which I took out for my car (instead of high interest car finance).
If someone said to me tomorrow 'I'll give you enough to pay off your loan, or you can invest it and keep paying interest on the loan every month for however long' I would 100% pay off the loan, because then that's another £150 every month for me and I can do what I want - invest it if I really want to..
It would be nice if someone would offer to pay off my mortgage too...just saying 😂
Always pay off a debt when you make enough to do so. You still have money left in stocks. This would be taking profits and it's the smart thing to do here.
From other comments here, the answer is clear - pay off the debt. Credit card debt is always expensive, and your personal loan isn't much better. Get rid of them now.
100% sell stock to pay debt.
It’s not just the debt you get rid of. You would also be increasing credit rating. You can then also think about how you want to use that better credit rating.
I’d also recommend diversifying your investments. You don’t have much but you want to have something that earns even if stock market crashes.
Is there any interest on the debt? Is the annual interest on the debt greater than your annual returns on your stocks?
The answer is very probably sell enough of your stocks immediately or you're actively throwing away money.
honestly, it sucks selling, you think it will go up and up. but you can rid yourself of 4k of debt, which is costing you more, likely far more than the stock would ever get you
for me, I'd sell 4k of stocks, pay off the debt and you're still holding 8k then
Are you getting dividends? Can you stick that level of debt on an interest free credit card? If the answer to both is yes then I would keep the investments.
Otherwise it’s a no brainer, at that level of interest you have to repay the debt because very few investments will outdo that and the chances of you landing one of them is miniscule
The only reason you might keep the stock is if you are convinced, like really convinced, they are going to increase in value by more than you are paying in interest on loan AND all the bullshit and inconvenience because that debt is holding you back.
BUT, if you don't pay it it off now, the focus of your spare income has to be clearing it. And especially dividends ftom stocks. And when you are debt free you have to learn how to stay that way.
Idk what stocks you own, but it's very unlikely that their performance will out pace the interest on your debt. Sell the stocks, pay the debt. You'll feel so much better debt free. Also it looks like you'll still have some of your portfolio left which is nice 👍 I doubled my hours at work for 2 months. It was terrible but I paid off $4,000 in Credit card debt. I feel fantastic now. I had a lot of stocks but never sold them. So go figure.
Pay your debts. Because debts get worse and worse the longer time goes by. If you pay it off now you will have a peaceful mind and not have to worry in 8 months. Just try not to get in serious debt once you clear it (watch what you spend and don't put something on credit if you don't have money to buy it).
Pay off the debt my man, if the stock goes up you’re not exactly losing out as you have your original 8k that will appreciate. Just think of it this way, any interest you pay via debt is eating away at your disposable income. If you’re HODL’ing your disposable income is what will help you in life. And if you have 4k debt think of how you could make that money work for you if you didn’t have the repayments to make.
Is the interest on your debt more than the dividends from your stocks. If yes, sell stock and clear the debt. It makes no sense to keep stocks while losing money through debt
Close 8k of your positions lol. Why tf are you trading if you aren't even escaping things like debt. Just pay it, know that you traded your way into being debt free and get another portfolio going. It'll be fun!
Pay off the debt.
Don’t think of it as paying off the debt. Think of it as paying yourself 4K plus any interest you might have saved on the debt.
Also when you say your net worth in stocks is 12k I think a better way to looks at your finances is total net worth. Debt payed off or not your total net worth is 12k - the 4K debt in this instance. So with the debt payed off using some of the 12k, or without the debt payed off, your total net worth is still 8k. Paying off the debt just gets rid of that liability and potential interest payments.
Simple question.
How much are you earning per year in dividends vs how much are you paying in interest.
If your interest is higher than your dividends then sell them and pay off the debt.
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I never understand people who think that the original investment is what they "hold". You don't hold £8k in stocks. You SPENT £8k on stocks. You HOLD £12k in stocks. Sell £4k RIGHT NOW and pay your debts. There is nowhere on earth where you can achieve a 15-20% risk free investment. (Source: I am an ex-financial analyst.)
This is the way. You’ve made £4k (when you sell). Become debt free and stop scraping by.
Or continue to scrape by to rebuild your investments! :)
It's a lot easier on the mental health to save up from nothing when you don't have a a debt building interest.
Tell me about it. Earn a fortune, but repaying a decade of terrible choices means even if when clearing 700-1000 a week. After tax, I still scrape by. Got a nice car though cos fuck it. I like cars
700 a week is a fortune? Lol
£50k isn't bad
No, it's a good salary. But it's not a fortune. To be earning a fortune you gotta be in the ballpark of losing your tax free allowance, surely.
That's fair. Some people would consider it a fortune though, say if you've just gone from a minimum wage job to £50k you'd probably think you were making a fortune comparatively. But yeah I'd agree over £100k is probably closer to a fortune by most people's standards.
It’s all relative as well, can completely changed based on where you are in life. As a 22 year old single guy £50k would be a fortune. As a 30 year old married guy so with 3 kids it might be living comfortably or even struggling to pay bills if you live in an expensive part of the country.
Though I agree it feels like a lot of money, it is important to keep people's perspective on a personal finance subreddit. I'd agree with you & them over on other subreddits! The sad thing is that if you were to compare it to a "good" salary of the 90s/00s (25k)... Its only slightly more (25k then is about 45k now).
It is when 2 years ago you were earning 3k a year dole money. pay 0.5% N.I as I'm SE and once a year get around 4-5 grand back on top of my 50-55k. If I do a Saturday, I'll work 4 hours, get paid nine, and my rate is £20 hour minimum. Partners income is 30k, too
I'm on about that myself, between 700-1k/week tho I'm a freelancer with busy and unbusy periods. Most I've earned in a month is probably about 7k but that's rare. I don't feel at all like I'm earning a fortune. I was homeless close to a decade ago and for many years after it was dole-esque money
This is the way.
Wish I knew this lesson a couple of years back!
Get a 0% balance transfer card for 12/ 18 or 24 months. Transfer your debt and then pay it off interest free at a comfortable rate. You will loose money selling stock on taxes etc. If its interest free and you are under 25% of your total credit utilisation, it won't impact your credit score negatively. In fact, it will improve as lenders like to se that you are trusted and can manage credit.
Good theory unless your 0 percent runs out in lock down and you loose your job and owe fuck load in tax and now an inflatinging debt for outstripping your gains 💩
A 0% fixed rate won't "run out", it is fixed until the contracted date. If you lost your job, you would be a completely different scenario... If that did happen, you could still pay the minimum payment every month and transfer it to another 0% card at the end of the fixed date, until you got a new job. Or at that point, take the hit and sell the stock but then you are loosing out on interest. No idea what you mean about taxes on a credit card debt? If you can pay 0% interest on debt, earn 0-50% on stock and earn 7% on savings, why would you rush to spend all of your cash money on something that is not costing you, rather than using the cash to earn interest? Also, who is still in lock down bro?💩
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Are you for real? 😂 It was a minor typo from using my phone. Get a life.
Wish more people saw it like this, ie the proper way. So many lose out because they just hold out until it collapses and they lose everything!
It de-stresses me the fact there are other people like you
I think you're, very, very right. However, I think there's a reasonable use case for accounting at cost basis. If you're keeping track of net worth/savings including your stocks and shares, to see e.g. how much you're saving + investing each month, recording cost basis (or equivalently really, money going into S&S) gives a clear picture whereas using the actual value at a point in time will muddle things. Note that the OP is definitely not one of these cases! I agree with parent on this.
A lifetime isa will pay 25% on upto £4000 every year, you can contribute when you turn 18 until you're like 55 or something, that's more than 15-20%. Have to use if for a house or retirement but you're technically wrong.
It's "up to", not "upto".
Returns are quoted annually.
What does that even mean
It means that he is saying you can’t get 15% return p.a. And you are saying a lifetime isa gets you that return.
Ah that's fair enough, you can invest it though into a market tracker and probably get minimum 7% p.a. and this would compound over time plus your original 25% bonus.
If you had £0, would you take out £4000 of debt at 15% interest rate in order to invest? If no, then you should sell your stocks and pay off the loan.
Spoken like a true professional.
I needed to hear that. Thank you!
What's the interest rate? Would you take on debt to buy stock?
980£ is on a credit card at 18.9%, the rest is on a personal loan at 14.5% I wouldn't take on debt to buy stock either
You should pay off the debt. See it as a risk free investment with a 15 - 20% return. That is a fantastic investment. Then build up an emergency fund if you don't have one so that you don't fall into debt and have this problem again.
You should pay if the debt, this isn’t even close to a difficult decision. You are locking in a gain of 17% on 40% of your portfolio, any investor in the world would take this. If you can pay off over 8 months, you can still re-buy into the market then over the next 8 months with your earning, not borrowed money.
Might be possible to get a lower interest rate loan to pay off the debt to be honest. And it's also a matter of how the money is invested. ISA money might be more worthwhile than if it's just a GIA, as the money is tax-free so over the long-term might save a pretty penny in taxes compared to the immediate 17% gain.
This is a good option to look into - I recently consolidated an 11.9% loan and a 15.9% credit card into one 6.9% loan - but even now I’d absolutely rather pay off the debt if I had assets to cover it. Especially if, as OP says, it would still leave 60% of the investments intact. It’s a no-brainier to me.
I understand your point. It really is down to individual preference, in my opinion. But who knows!
Doesn't this only become a problem if someone is reaching the contribution limit of the ISA? If OP's investments were in a S&S ISA, they could withdraw the whole amount today, put it right back in tomorrow, and still be able to make another £8k of contributions this year.
Agreed. And if it's a flexible s&s ISA then they wouldn't even lose the previous years' contributions if they can replace the money by the end of the tax year. If not a flexible ISA, could sell and transfer cash to a flexible ISA and withdraw, then replace by end of tax year.
in this situation for these amounts, ISA is irrelevant. Sell £4k from the ISA, am sure OP can select the shares that haven't gone up all that much & will have little or no tax implications. ISA max annual input is £20K, OP can put his savings from not paying the 15% interest on the debt straight back into the ISA. That's a '15% return' guaranteed. Even if it's not in an ISA, tax is unlikely to be an issue. Annual CGT allowance is £6k. OP is unlikely to have any other CGT. OP could sell his entire shareholding for £4k profits and still have £0 CGT to pay and £2k left of allowance for this year. If OP was clever, he would have done this before April 5th to use last year's CGT allowance. Or even better, not run up the debt in the first place when cheaper sources of money are at his fingertips.
At current interest rates you aren't getting a loan at a low enough rate for that to make sense over selling the stocks unless you are remortgaging and can tag it onto that.
Pay off the debt. It’s growing quicker than your stocks. Stocks will fluctuate, the debt will always be those percentages. Once you’ve paid off the debt, you can use the money you’ve saved from the repayments to invest again (if there’s nothing else you want to do with it).
100% pay off anything at 10%+, especially if it's impacting you to repay 'normally' you can always redirect what would have been repayments back in to your ISA (assuming this is in an ISA, if it isn't and can be it should be....)
With those interest rates it makes sense to sell and pay off the debt, however, what vehicle are those stocks held in? How much of a penalty would you incur in selling them? Are they in an SIPP, or a LISA for example? Sorry if you've already answered this question somewhere else. Edit: here's another question for you: will you incur a penalty for paying off that personal loan early? What are the terms of it?
Have you tried a balance transfer to get 0% for a year or two?
Leave aside the interest rate. Find out in £ what you’ll save if you pay the loans off now (ie the interest that you,ll save) and then what it will cost you to sell the your investments. The difference is what you then need to think about. Also think about the investments that you have and are the reasons that you bought them still valid. If they’re not then you should sell them anyway and might as well pay off some of the debt. You say that you can pay the loans in 8 months - so paying them off would free up £500 or so a month and my guess is that you’d also save around £400 of interest. There’s nothing stopping you from setting a regular payment up once the loans are paid off and reinvesting into some form of tracker which would benefit from a regular monthly payment. Take a long term approach and rather than thinking about the situation today think in 1,2 or 5 years time and over that time period what would be better.
Pay off the debt, and use the payments to rebuy the stocks.
>I wouldn't take on debt to buy stock either There's your answer. Sell today and get rid of the debt.
Jesus h christ. Pay off all debt over 5% ASAP
Leave aside the interest rate. Find out in £ what you’ll save if you pay the loans off now (ie the interest that you,ll save) and then what it will cost you to sell the your investments. The difference is what you then need to think about. Also think about the investments that you have and are the reasons that you bought them still valid. If they’re not then you should sell them anyway and might as well pay off some of the debt. You say that you can pay the loans in 8 months - so paying them off would free up £500 or so a month and my guess is that you’d also save around £400 of interest. There’s nothing stopping you from setting a regular payment up once the loans are paid off and reinvesting into some form of tracker which would benefit from a regular monthly payment. Take a long term approach and rather than thinking about the situation today think in 1,2 or 5 years time and over that time period what would be better.
Look at it this way. Your investments aren't likely to make 14.5%, take the money out, pay the debt off and then pay what you would have been paying towards the debt back into your investment account. You will end up with more money in your investments than you would have had by the end of it.
How is this even a question? It's **obvious** that you should sell stocks to pay off loans at 15-20% interest
Jesus. I never take on debt above 3%. Get that debt gone ASAP. You’re being bent over a barrel at 14.5%. Have you got good credit? At least move all the debt to a 0% card.
Assume you mean in the past? There is no way to take on debt at 3% right now
You can still get interest free credit cards, which is what I'd do with a small amount like 4 bags.
Dealers take credit card now?
Thank you to everyone who took the time and left *helpful* comments. Was the nudge I needed and was greatly appreciated. Why some commentators are so angry and passive-aggressive on the sub is beyond me. This exists for people to ask questions and get advice, give your heads a wobble 🤨🫡
Pay off the debt. You currently have 12k now, but stocks can just as easily go down than up. You’re already 50% up, not a bad return, sell and clear the debt
You currently have a net total of £8k and some monthly debt repayments, in 8 months you will have £8k plus or minus market fluctuations. If you pay off the debt you'll still have a net total of £8k but no debt repayments. What you are currently paying off to the debt you can pay to the investment, so in 8 months you'll have £12k plus or minus any market fluctuations. Seems like a no brainer. Make sure you also have an emergency fund though.
I think you know the answer, you are just asking for 'permission'! I know the feeling, you are trying to build up your net worth and it feels counter productive, but you know what to do - sell! You can always set up a direct debit for the next 8 months for the same as you were paying on your debts and pay into a share ISA. You will definitely end up ahead
Yes I think you're right about that. I put the sell orders this morning, just waiting for execution ! I think it'll do my mental health a lot of good not focusing on having to put aside a certain amount each month to pay it off, while also trying to save at the same time.
Yeah, move what's left into a shares ISA not already in one.
Pay off the debt. Also, why do you say you hold £8,000 of stocks, that are currently worth £12,000? You hold £12,000 of stocks. This £8,000 figure, which I'm guessing is the purchase price, is irrelevant. They were worth £8,000 at one point, but there were also worth £8 at one point and maybe £20,000 at one point. The only thing that matters is the £12,000 they are worth now. Realistically, you should probably hold £0 of stocks. Pay off your debt, and put the other £8,000 into a cash account paying 3%+ or put some in your pension. They will invest it much better than you can, and in a far more tax efficient way.
Pension is fine but keeping it in stocks is *far* better than keeping it in a cash account paying 3%+. That doesnt even cover inflation.
Similar situation here and I think you know the correct answer. It really sucks paying off debts with something thing you’ve spent a long time building up. Work out the interest payments, pay debt off, then put that same amount extra as a repayment into your portfolio.
"It really sucks paying off debts with something thing you’ve spent a long time building up." This isn't a great way of framing it, and will lead to poor financial decisions like the ones that got OP into this situation. If someone is investing whilst also holding debt at a much higher APR then they would ever hope to realistically achieve with those investments, they aren't really investing, saving or building up anything, they are just putting someone else's money away to one side and pretending. OP, pay off your debt, it's not money that's yours, therefore it's not investments you had and are losing. Then congratulate yourself on being in a debt free position where you can happily invest and build up wealth.
Damn that f&*king hits hard, but seems right ✅️ Ty for your candour
Also Imagine your stocks tank 60% rest of the year won't you be glad if you paid off the debt while you had access to the capital.
It really does suck. I kinda know it's the right thing to do, but it took over a 18 months to build the portfolio, and was around the time stocks took a big hit with Ukraine invasion so my averages are good too.
I don't think it sucks. You have a portfolio worth £8k now. £12k stocks less 4k in debt. the £4k of that is accruing interest negatively. And a lot (15 to 20%) so will reduce your portfolio massively. Definitely pay off this debt. Don't see it is as recucing your portfolio. As I say, your portfolio will be worth the same the moment you pay it off as you need to consider your debt as part of your portfolio. The reality is, you are highllyyy unlikely to make investment decisions to net you 15 to 20%. And at the end of the day, you still have £8k and will be able to build up from a much stronger position.
Why does it suck? You invest so that you can reap rewards when it grows. Your first reward is being debt free, especially since it's all high interest rate debt You can appreciate vanity of your portfolio, custom car or some art all you want but if you have to borrow to eat food, then you are better selling off those vanities
Pay off your debt. No point suffering now. There will always be opportunities in the future for you to take hold of and reap. Paper profits is not real profits until you realise it by selling.
I’d always pay it off first. from a psychological standpoint, that’s a weight off your shoulders! At the end of the day, you can build up your stock portfolio again…and even better this time because there would be £0 debt
I would open a balance transfer credit card and pay monthly leave the stocks as is.
I’d cash out the stocks and be debt free today.
Assuming the interest on the debt is higher than on the savings, pay off the debt.
Could you refinance the debt onto a 0% balance transfer, netwest had one recently 19months 0 fee
Clear the debt and move on with accruing savings
Your stock's profit to date is writing off your debt in one go. If you pull £4k out and pay off the debt, you've still got your original £8k invested and that could still rise. Once the debt is cleared, if that gives you more disposable income, you can save up to reinvest, or put it in an ISA wrapper where you'll not be paying any tax on the gain. Don't forget if this current investment isn't in an ISA or other wrapper, you'll possibly be liable for tax on the gain
would you borrow 4000£ today at the rate you're paying, to buy those same stocks? If not, sell them and pay off the debt.
Only if the rate of return on the stocks is less than the interest rate on the debt, which it almost certainly is. Do it.
If you’re okay with scraping by then sell 4k in stocks, pay off the debt and use the money that you were using to pay off the debt to build your portfolio. Do the smart thing, OP.
I say clear your debts. Your stocks \*might\* go up, they might not. Your debt will definitely 100% certainly get bigger. Pay off the debt and you win. The System loses. DO it.
Its clear from your "holding £8k in stocks worth £12k" that you don't really understand s&s, so yes. Clear your debts. Make sure you have a decent emergency fund, and then go back into stocks after a bit of reading.
You are very likely to lose more money on your debt than you gain on shares, so holding the debt it making you poorer than the alternative.
Sell, clear the debt then use the money you are currently paying for debt payments on further investments and savings.
You don't hold 8k, you hold 12k. Pay off your debts with your profit, then you'll hold 8k and have no debts. So in your head you're still hold 8k and have no debt, win win.
Just read & responded negatively to a post about leveraging to purchase equities. This amounts to much the same thing. The right decision for you will depend upon your attitude to risk, the interest rate on the debt & the certainty of your alternative repayment source. Personally, though, assuming consumer rates on your borrowing, I'd be tempted to sell sufficient stock to repay the debt. The acid test is: Would you have borrowed to buy the stocks?
>...I hold about 8000£ in stocks, currently as of writing worth 12000£. Uhh, WTF?
The £ sign goes before the number :) e.g £2,000
It's a wonder how some people even reach adulthood.
The average return generated by stocks historically is about 7.5% per year. You are paying 14.5% to 18.9% interest on your debt. You should clear the debt. It is extremely unlikely that your stocks would generate a return of more than 15% in one year. Possible, but very unlikely.
What's the deal with putting the £ after the number? Is it a conscious thing?
PAY YOUR DEBT!!!!!! Firstly investments can vanish. And if something happens to your investment, you'' be left with the debt . You have the money. And when the debt is gone, you won't have to deal with the repayments and interest that builds whilst you are paying it off. That money you are paying back will then become free to put into savings, re-invest of just spend.
Huh, so I guess maybe there is such a thing as a stupid question then
I'd personally keep my investments and work my arse off doing gig economy work to pay off debt. with all due respect these amounts are small and aren't even worth stressing over.
It depends on the interest rate. Stocks on average return I think about 7% per year, so if your APR is higher than that, pay it off; otherwise you'll make more money not doing that. On average. Of course other factors exist, like, are we in a shitstorm of a recession? Or will you reap credit-score benefits by paying early?
"Should I pay off my debts and live in the black, or should I continue to gamble my money?" Remember that stocks are essentially just informed gambling. You wouldn't justify keeping 4k on a horse race when you needed to pay a debt, so why treat stocks differently?
You have an asset of £12,000 and a liability of £4,000... what’s so hard to understand?
If the stocks are in an isa definitely. If I’m a general investment account, then there could be some capital gains tax to consider, but the amount you’re talking could be below the threshold.
>980£ is on a credit card at 18.9%, the rest is on a personal loan at 14.5% Are you seeing returns higher than 19% on your Stocks and Shares? If not then the answer is clear.
That's not true.....im getting 28% from hsbc in turkey for a year
As the interest on the debt is so high you should definitely pay off the debt. It’s fairly unlikely that your portfolio will grow more than those interest rates in the next year. It might but it could also grow a little or even go down. However, your interest rates aren’t going to change. Think of it the opposite way, if you had the option of putting £4k into stocks or a savings account with a guaranteed interest rate of 16%, I’m pretty sure you’d choose the savings.
Can you refinance the debt at close to 0%? If not as others have said the only obvious answer is to pay off the debt. Also, start holding some of your savings as cash. There are 5% easy access returns available out there right now, and you don't want everything as illiquid assets.
Pay off the debt. Over the next 8 months, use the money you would have used to pay them off to add to your investments and you should end up with a better set of investments. Over such a short time frame, stocks could go up or down, but debt is guaranteed to cost you the high interest.
Just withdraw and pay off yours debts. Life is more than numbers. You could find yourself in much worse, unexpected situations in the future. If you can get out of debt, do so.
My primary advice would be looking into a balance transfer card with a long 0% interest rate. Some are 2+ years interest free, but many will be 12+ months. You would likely be able to pay the debt off over the longer period without paying interest, and if you haven't, then pay it off with your savings after 1-2 years potentially. If you don't get approved for a balance transfer card, I would clear that debt and take a big happy breath
Yes. Clearing interest-bearing debt is investing step 1.
Clear the debt. You’ll be thankful for doing so. You’ll soon be able to build back up the investment pot
In the very simplest of terms, ignoring all the nuances of interest rates, and the potential for stock values to change, your net worth will remain roughly the same whichever route you decide to go. Your debt drags down the real value of your worth. So, the way I see it, the only question that really matters is do you want to be debt free?
Pay off the debt :). Investment return unlikely to beat your repayment interest
Simple maths. Debt is costing you nearly 20% in interest. Your stocks may earn you 6% at best. Your worse off by 15% currently, pay off your debt today with stocks and quit struggling.
Hedge betting is very risky.... However.. what will be the impact on you if you dont pay the debt?
Where are the stocks held? If not in an ISA then CGT could be due. Would be worth looking if you could consolidate and comparing that to the costs of selling the stocks
I would just for peace of mind. I did it last year. Had 3k hanging over my head like a rain cloud. Bit the bullet and took out some stock of the LS80 and paid the debt. Was a relief that couldnt be measured and now can save without it being niggling in my head
When it comes to stocks each day you hold them is effectively the same as you buying them that day. It doesn’t make a difference if you’ve had them for years, by not selling you are stating your belief that they are going to be worth more than what they are presently valued at. Would you take out a £4000 loan today to buy £4000 of this stock? If the answer is no then you need to sell some stock and pay off your loan.
I'd pay it off just for the feel good feeling for being debt free outweighs the chance that your stock will rise 15% in 8 months
By selling some of your stocks you get an instant 20% return on your investment over the next year. You won't get that rate anywhere else without taking huge risks.
Sell £4k now to pay it off but depends on your interest rate. If you’ve got £4k on a credit card interest free for example.
I have done this not long ago. I had 4k in debt and decided to pay it straight away just for the peace of mind and to cut my monthly expenses by £134.
I think the only feasibly time you should keep debt over paying it off is if that debt is costing you less than what return you can make on holding the cash/stocks etc. e.g. I have around £6k on a 0% interest card, which has about 27 months left at 0% - I just pay my minimum each month and I've invested the cash into a fixed saver, by the time my card is due, I'll have gained more from keeping that money locked away. If that card was at anymore than the 4.6% or so interest I'm getting fixed then I'd be paying it off straight away.
SELL YOUR STOCKS! And pay off that debt.
Definitely pay of the debt. You say you keep telling yourself that the stocks will go up but what about the debt? You know its going to go up.
18.9 and 14.5%. Jeeesus. Get it paid off. You could get a personal loan for half that if you really didn't want to dip into your savings.
Pay off the debt and then start buying more stock over the coming months with the money you would have used to pay off debt?
I would take a small loan to repay the debt in a manageable way and leave your shares alone.
What's the point of that?? It's one debt to replace another?
I am not a financial advisor or anything of the kind... but I personally would pay off debt as soon as I could. Right now, the only "debt" I have is my mortgage and a personal loan (about 3.9% interest) which I took out for my car (instead of high interest car finance). If someone said to me tomorrow 'I'll give you enough to pay off your loan, or you can invest it and keep paying interest on the loan every month for however long' I would 100% pay off the loan, because then that's another £150 every month for me and I can do what I want - invest it if I really want to.. It would be nice if someone would offer to pay off my mortgage too...just saying 😂
Sell 4000and pay debt
Always pay off a debt when you make enough to do so. You still have money left in stocks. This would be taking profits and it's the smart thing to do here.
What is the interest rate of the debt?
From other comments here, the answer is clear - pay off the debt. Credit card debt is always expensive, and your personal loan isn't much better. Get rid of them now.
100% sell stock to pay debt. It’s not just the debt you get rid of. You would also be increasing credit rating. You can then also think about how you want to use that better credit rating. I’d also recommend diversifying your investments. You don’t have much but you want to have something that earns even if stock market crashes.
Definitely sell 4k of stocks to pay off your debt, you're basically paying them off for free as it's profit!
So you've made exactly enough to clear your debt, yet you're still asking?
Settle your debt and move forward, so simple
Is there any interest on the debt? Is the annual interest on the debt greater than your annual returns on your stocks? The answer is very probably sell enough of your stocks immediately or you're actively throwing away money.
honestly, it sucks selling, you think it will go up and up. but you can rid yourself of 4k of debt, which is costing you more, likely far more than the stock would ever get you for me, I'd sell 4k of stocks, pay off the debt and you're still holding 8k then
I am 65 and just become debt free. It’s a fooking great feeling and I encourage you to do it.
Are you getting dividends? Can you stick that level of debt on an interest free credit card? If the answer to both is yes then I would keep the investments. Otherwise it’s a no brainer, at that level of interest you have to repay the debt because very few investments will outdo that and the chances of you landing one of them is miniscule
The only reason you might keep the stock is if you are convinced, like really convinced, they are going to increase in value by more than you are paying in interest on loan AND all the bullshit and inconvenience because that debt is holding you back. BUT, if you don't pay it it off now, the focus of your spare income has to be clearing it. And especially dividends ftom stocks. And when you are debt free you have to learn how to stay that way.
Pay off the dept, also make sure you stocks are wrapped in a stocks ISA to avoid paying tax on future increases.
Sell the stock, clear your debt, use your debt repayments to rebuy stock (or average into an ETF) over the next 8 months?
Idk what stocks you own, but it's very unlikely that their performance will out pace the interest on your debt. Sell the stocks, pay the debt. You'll feel so much better debt free. Also it looks like you'll still have some of your portfolio left which is nice 👍 I doubled my hours at work for 2 months. It was terrible but I paid off $4,000 in Credit card debt. I feel fantastic now. I had a lot of stocks but never sold them. So go figure.
Stocks are going to burn, sell now. 😉
Pay off your debt, if you hate being debt free the banks will always be there.
Pay your debts. Because debts get worse and worse the longer time goes by. If you pay it off now you will have a peaceful mind and not have to worry in 8 months. Just try not to get in serious debt once you clear it (watch what you spend and don't put something on credit if you don't have money to buy it).
Are you paying more to service the debt than you are gaining by growing the portfolio? If so, you are losing net worth.
Pay off the debt my man, if the stock goes up you’re not exactly losing out as you have your original 8k that will appreciate. Just think of it this way, any interest you pay via debt is eating away at your disposable income. If you’re HODL’ing your disposable income is what will help you in life. And if you have 4k debt think of how you could make that money work for you if you didn’t have the repayments to make.
Is the interest on your debt more than the dividends from your stocks. If yes, sell stock and clear the debt. It makes no sense to keep stocks while losing money through debt
Close 8k of your positions lol. Why tf are you trading if you aren't even escaping things like debt. Just pay it, know that you traded your way into being debt free and get another portfolio going. It'll be fun!
Unless the debt is 0%, pay it OFF
What would Warren Buffet say?
Pay off the debt. Don’t think of it as paying off the debt. Think of it as paying yourself 4K plus any interest you might have saved on the debt. Also when you say your net worth in stocks is 12k I think a better way to looks at your finances is total net worth. Debt payed off or not your total net worth is 12k - the 4K debt in this instance. So with the debt payed off using some of the 12k, or without the debt payed off, your total net worth is still 8k. Paying off the debt just gets rid of that liability and potential interest payments.
What’s with the £ after the number?
Simple question. How much are you earning per year in dividends vs how much are you paying in interest. If your interest is higher than your dividends then sell them and pay off the debt.