topic Re: Keep Stock or Payoff Car? in Personal Finance

Keep Stock or Payoff Car?

Anonymous — Wed, 04 Sep 2019 04:52:49 GMT

So here's the situation:

I received some stock in compensation for a layoff several years ago. I routed some of it into a retirement account, some into an emergency fund and left some in a general investment account.

I used to have terrible credit (mostly related to medical bills and other unapid expenses due to trying to pay medical bills). This is almost entirely cleared up now but while I had a score in the low 500s I bought a car and have a lovely 14% interest rate and a car that I owe more on than it is worth. Because I am upside down, refinancing hasn't been a viable option.

I could sell that general investment account stock and payoff the car in full. It has been earning about 4 - 6 % annually so in the short term it makes sense to use this money to pay off a debt charging more interest than I am earning but in the long term (in theory) this stock should pay out more than the interest I pay on the car.

I am in a financial position where I can afford to keep paying on the car and meet my regular expenses plus save about 15% of my pre-tax income (in addition to my 401k savings), however I would love to not have this car payment because in the near future this car will be sitting unused when I move to another city where I won't need or want to drive.

Thoughts? What would you do?

Re: Keep Stock or Payoff Car?

SouthJamaica — Wed, 04 Sep 2019 12:07:58 GMT

@Anonymous wrote:
So here's the situation:

I received some stock in compensation for a layoff several years ago. I routed some of it into a retirement account, some into an emergency fund and left some in a general investment account.

I used to have terrible credit (mostly related to medical bills and other unapid expenses due to trying to pay medical bills). This is almost entirely cleared up now but while I had a score in the low 500s I bought a car and have a lovely 14% interest rate and a car that I owe more on than it is worth. Because I am upside down, refinancing hasn't been a viable option.

I could sell that general investment account stock and payoff the car in full. It has been earning about 4 - 6 % annually so in the short term it makes sense to use this money to pay off a debt charging more interest than I am earning but in the long term (in theory) this stock should pay out more than the interest I pay on the car.

I am in a financial position where I can afford to keep paying on the car and meet my regular expenses plus save about 15% of my pre-tax income (in addition to my 401k savings), however I would love to not have this car payment because in the near future this car will be sitting unused when I move to another city where I won't need or want to drive.

Thoughts? What would you do?

Pay off the loan. Now. That's money in the bank.

Your stocks can go down as easily as they go up.

Re: Keep Stock or Payoff Car?

Anonymous — Wed, 04 Sep 2019 13:08:12 GMT

Thanks. That was my instinct but some little voice in the back of my head wants to believe that stock will keep climbing. But they could also crash any moment.

Re: Keep Stock or Payoff Car?

satio — Wed, 04 Sep 2019 14:08:46 GMT

@SouthJamaica wrote:
@Anonymous wrote:
So here's the situation:

I received some stock in compensation for a layoff several years ago. I routed some of it into a retirement account, some into an emergency fund and left some in a general investment account.

I used to have terrible credit (mostly related to medical bills and other unapid expenses due to trying to pay medical bills). This is almost entirely cleared up now but while I had a score in the low 500s I bought a car and have a lovely 14% interest rate and a car that I owe more on than it is worth. Because I am upside down, refinancing hasn't been a viable option.

I could sell that general investment account stock and payoff the car in full. It has been earning about 4 - 6 % annually so in the short term it makes sense to use this money to pay off a debt charging more interest than I am earning but in the long term (in theory) this stock should pay out more than the interest I pay on the car.

I am in a financial position where I can afford to keep paying on the car and meet my regular expenses plus save about 15% of my pre-tax income (in addition to my 401k savings), however I would love to not have this car payment because in the near future this car will be sitting unused when I move to another city where I won't need or want to drive.

Thoughts? What would you do?
Pay off the loan. Now. That's money in the bank.

Your stocks can go down as easily as they go up.

I second this.

You can also then choose to apply the monthly funds you have been paying on the car loan to then funnel into savings or back into investment account.

Re: Keep Stock or Payoff Car?

Anonymous — Wed, 04 Sep 2019 14:22:54 GMT

That's the idea. I want to funnel the savings of not paying the car note back into savings. I don't need it to meet my regular expenses and it seems kind of foolish to sell stock only to blow through the money.

This is mentally kind of hard to do because I like the idea of having that money there but I have to keep reminding myself that I don't need it, I have other cushions and the money is still there - it is just in a new form!

Re: Keep Stock or Payoff Car?

ChessChik47 — Wed, 04 Sep 2019 16:49:34 GMT

@Anonymous wrote:
That's the idea. I want to funnel the savings of not paying the car note back into savings. I don't need it to meet my regular expenses and it seems kind of foolish to sell stock only to blow through the money.

This is mentally kind of hard to do because I like the idea of having that money there but I have to keep reminding myself that I don't need it, I have other cushions and the money is still there - it is just in a new form!

I echo the previous posters' advice...sell the stock and pay off the loan.

Good luck to you whatever you decide to do!

Re: Keep Stock or Payoff Car?

Green456 — Fri, 06 Sep 2019 12:28:36 GMT

@Anonymous wrote:
So here's the situation:

I received some stock in compensation for a layoff several years ago. I routed some of it into a retirement account, some into an emergency fund and left some in a general investment account.

I used to have terrible credit (mostly related to medical bills and other unapid expenses due to trying to pay medical bills). This is almost entirely cleared up now but while I had a score in the low 500s I bought a car and have a lovely 14% interest rate and a car that I owe more on than it is worth. Because I am upside down, refinancing hasn't been a viable option.

I could sell that general investment account stock and payoff the car in full. It has been earning about 4 - 6 % annually so in the short term it makes sense to use this money to pay off a debt charging more interest than I am earning but in the long term (in theory) this stock should pay out more than the interest I pay on the car.

I am in a financial position where I can afford to keep paying on the car and meet my regular expenses plus save about 15% of my pre-tax income (in addition to my 401k savings), however I would love to not have this car payment because in the near future this car will be sitting unused when I move to another city where I won't need or want to drive.

Thoughts? What would you do?

I follow Dave Ramsey, so sell all investment accounts (except IRA/401k) and cash out all savings accounts to pay off your debt. Do keep a small emergency fund.

Re: Keep Stock or Payoff Car?

Green456 — Fri, 06 Sep 2019 12:31:13 GMT

@Anonymous wrote:
That's the idea. I want to funnel the savings of not paying the car note back into savings. I don't need it to meet my regular expenses and it seems kind of foolish to sell stock only to blow through the money.

This is mentally kind of hard to do because I like the idea of having that money there but I have to keep reminding myself that I don't need it, I have other cushions and the money is still there - it is just in a new form!

Automatically transfer the savings to your other debt. It is called snowball. Once done with debt then automatically transfer to 401k/IRA

Re: Keep Stock or Payoff Car?

tacpoly — Sat, 07 Sep 2019 06:46:20 GMT

If you expect the stock to be a strong performer in the future, then don’t sell it. Is that 4-6% dividend or stock price increase?

Anyway, why don’t you use that extra 15% savings and put it towards the car loan. Or sell some of the stock, only enough to get your loan in the black, then refinance to a lower rate.

Re: Keep Stock or Payoff Car?

Anonymous — Sat, 07 Sep 2019 13:41:08 GMT

@Green456 wrote:
@Anonymous wrote:
That's the idea. I want to funnel the savings of not paying the car note back into savings. I don't need it to meet my regular expenses and it seems kind of foolish to sell stock only to blow through the money.

This is mentally kind of hard to do because I like the idea of having that money there but I have to keep reminding myself that I don't need it, I have other cushions and the money is still there - it is just in a new form!
Automatically transfer the savings to your other debt. It is called snowball. Once done with debt then automatically transfer to 401k/IRA

I'm lucky in that my car is my only debt now (other than student loans - ugh). The other debts that got me into a situation have been paid. When the stock is sold the car payment will be transferred back into investment accounts and additional savings.

Re: Keep Stock or Payoff Car?

Anonymous — Sat, 07 Sep 2019 13:49:18 GMT

@tacpoly wrote:
If you expect the stock to be a strong performer in the future, then don’t sell it. Is that 4-6% dividend or stock price increase?

Anyway, why don’t you use that extra 15% savings and put it towards the car loan. Or sell some of the stock, only enough to get your loan in the black, then refinance to a lower rate.

All good points. The stock may perform well in the future - historically it has done well. The 4-6% is stock price increase.

I know it probably sounds counterintuitive but rerouting my savings is a non-starter with me. It took me a long time of living paycheck to paycheck and spending parts of my childhood and early adulthood in effective homelessness to get to where I am. I won't return to that and part of how I guard against it is through savings.

I have thought about selling just some stock and refinancing (and then diversifying the stock because it is a British company, traded solely in London and things aren't looking super secure right now). But I would also really love to not have this car loan to pay when the car will just be sitting idle not being driven for many months. I've also considered selling some stock to get the loan in the black and then selling the car because I don't particularly like the car. But then I'd just have to get another car in about a year and that feels like a hassle?

Ahh. Decisions.

Re: Keep Stock or Payoff Car?

Anonymous — Wed, 11 Sep 2019 04:42:55 GMT

I track the market VERY CAREFULLY.

My methods are not traditional by any means, and I am no financial advisor and not qualified to offer you advise, however, I will tell you this:

I called the top of the stock market on January 28 2018, the bottom of a huge sell off a few days later, tops in March & October, the bottom in December 2018, and another top in May. All of the major pivot points. Here is where I think the S&P 500 is headed next:

We are on our way to a new all-time high (probably around 3028). Then we get a dip, probably to the 2820 area, then one more rise to another all-time high, probably in the 3046 area. After that, look out below. It's going to come down to AT LEAST the December 2018 lows in 2300 area, and likely lower than that, possibly between 1900 & 2000. That's quite a haircut. After it bottoms out, one, final wave all the way back to the top (the suckers rally) which may last until June 2023 before it finally tops out and we have the Doom & Gloom scenarios guys like Harry Dent, etc... have been predicting (and been wrong about) for years. The bottom comes in 2028, after a substantial cut.

That is a lot of volatility. Since I don't know your specific stock (only the general direction of the market), if it trades with any of the big boys, it's likely to follow similiar patterns. I'd get out now. We are near a top at 2980. Keep some of the cash on the side & pay down the car loan (but not to zero) and keep some of it on the side to re-enter the stock if & when the market tanks and bottoms out as I have described.

Go back and look at a chart for your specific stock. Did it rise over the last 9-10 years, take a hit in August 2015, recover, & take hits like the rest of the market in Jan and October of last year, then see gains to the present day? If so.... be careful. If it has been immune to fluctuations I have described, I'd still be tempted to exit at least half of it right now (or over the next week) & keep the cash lying around.

Again, I am not a licensed security broker & trading decisions are your own. These are my observations & predictions based on technical analysis using Elliot Wave & Timing with Astrology. I told you.... my techniques are non-conventional...

Re: Keep Stock or Payoff Car?

Anonymous — Thu, 12 Sep 2019 04:53:43 GMT

A big caveat: it trades in London, not in the US markets. It has been consistently up up up for 10 years (since it went public). This last year it held steady with no real loss or gain. The spectre of a no deal brexit (or even the current on offer deal brexit) pushes me toward dumping this stock.

Thanks everyone!

Re: Keep Stock or Payoff Car?

tacpoly — Thu, 12 Sep 2019 14:02:37 GMT

You’ve said the stock is traded on the London Stock Exchange, but would it actually be negatively affected by Brexit? Sone businesses (and thus their stock) are expected to fare badly but there will be winners as well. You need to assess the that particular stock. But, if you’re just looking for a reason to dump the stock, then that is reason enough.

Re: Keep Stock or Payoff Car?

sccredit — Fri, 13 Sep 2019 22:39:03 GMT

OP - Before you go and sell the stock off have you looked at your tax remifications? That would definitely effect your net proceeds. Is the tax more than the interest? That would mean your net gain would be negative from paying the car off.

Re: Keep Stock or Payoff Car?

Anonymous — Sat, 14 Sep 2019 07:11:44 GMT

@sccredit wrote:
OP - Before you go and sell the stock off have you looked at your tax remifications? That would definitely effect your net proceeds. Is the tax more than the interest? That would mean your net gain would be negative from paying the car off.

I have and the stars have aligned this tax year to put me in a fairly good position.