Should You Have an Investment Portfolio If You Are in Credit Card Debt?

If you are in credit card debt you might want to consider decreasing some of your investment portfolio. If this is the case you can consider selling some assets in order to save money on interest payments. It’s tough being invested while also carrying credit card debt since you almost have to decide to weigh one thing over the other. In this scenario, there’s quite a bit of uncertainty regarding how your investments will do, so It’s important to consider all potential ramifications it’ll have on your finances, in particular tax consequences.

Tax Consequences

Taxes can play an important part in whether you should consider selling some investments in order to pay down your credit card debt. If you have gains, you need to consider that you will have to pay taxes on those gains if you sell your position. It’s worth considering this since you might not be able to effectively use all proceeds towards paying down your debt and will also have to save some money for taxes if you are required to pay back money. On the flip side of this, if you’ll be taking losses to pay down debt you might not want to utilize those losses yet if they won’t help effectively lower your tax return. The max limit you can take on losses is $3,000 per year, so any loss amounts greater than this will have to be used in the following years or until they are offset by gains.

Making Your Money Go Further

When deciding between using your money for one thing or another, it’s always important to see what makes your money move the furthest. In order to effectively do this, we need to consider the opportunity cost of our money. If you’re paying 22% APRs on your credit cards and you have an investment yielding 16% a year, in most scenarios it’ll make sense to eliminate the investment and payoff the debt. Although past performance is not indicative of future performance, it still makes a lot of sense to sell your position in this scenario. If the same results repeat as last year, paying down your debt will be the right decision. This is how you can help yourself make better financial decisions.

Cost of Debt vs. Potential for Investment Returns

Ultimately, in order to decide whether you need to sell off some of your portfolio to pay down debt you need to roundabout find an answer for whether your investments will beat your portfolio earnings in the long term. In most scenarios, paying down your debt is a safer thing to do, financial speaking. However, you might be sentimental about your investment and might think it might not be the best time to take that tax gain or tax loss right now. If you are caught in between the middle of these two opposing sides, maybe you can do a little bit of a both. You don't necessarily have to sell off your entire portfolio if you are in extensive debt but you can consider selling some assets in order to better balance your finances and reduce some monthly liability from interest payments. It's never an easy decision to decide whether to invest or pay down debt but it's something we have to do nonetheless, even if we are emotionally attached to some of our investments.