Credit card debt solutions. (Thinkstock)
By Matt Krantz, USA TODAY
Q: I have a brokerage account that is doing nothing. Should I cash out all my stocks and pay down my big credit card bill instead?
A: Investors watching their stock portfolios stagnate over the past five years are understandably frustrated. But those paying 15% annual interest rates on credit card debt at the same time must be fuming.
Poor portfolio returns paired with high credit costs is a tradeoff you're wise to be upset about and eager to fix.
You should strongly consider liquidating a big piece of your non-retirement portfolios to pay down your credit card debts. If you take money out of your portfolio and use it to pay down credit card debt at 15% annual interest, you're locking in a guaranteed 15% annual return. A 15% guaranteed return by repaying debt is just about the closest thing to a home run you're going to find in this market.
Clearly, you need to be disciplined about this. Keep in mind that if you take the money out of a taxable portfolio, there may be capital gains taxes to consider. You'll want to make sure you offset gains with losses if possible to keep the tax bill down.
Second, be mindful of your cash flow needs. Money you need for the next three to six months shouldn't be in the stock market anyway. But you'll want to make sure you have at least enough cash available to handle three months of expenses.
Also, be careful about raiding retirement accounts to raise cash to pay down debt. The fees to take money out of retirement accounts early are pretty stiff and could easily erode any benefit you'd get reducing your debt load.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at email@example.com. Follow Matt on Twitter at: twitter.com/mattkrantz.