“I am confused on if holding the stock and making money off its appreciation is better than paying off all this debt immediately”: Should I invest my RSUs or use them to pay off debt?

Hey Money Minder!

I’m 26 and pulling in $72.5k a year, mostly in RSUs, so my total income for the year is $114k. The RSUs get taxed at a whopping 39.6% in NJ. Right now, I have $9,500 in savings and $11,500 in vested stock with no more taxes due on it.

I’ve also got a total debt of $35,578, made up of my car, credit card, and student loans. My car has $6,669 left to pay, the credit card debt is $1,600, and the student loans are split across multiple loans with interest rates varying from 2.75% to 5.05%.

After all the numbers are crunched, I’m left with $4,402 in monthly income, $3,200 in expenses, and saving around $600 a month, along with $600 for personal spending. The burning question is, how do I tackle this debt to get the best results?

My stocks are in AMZN, and the price has been on the rise. Should I hold onto them and let them grow, or should I pay off my debt first? It’s a bit confusing with the S&P expected to grow at 8% annually while my debt is only at 5%. I need some guidance on this.

Any tips on how I should prioritize paying off my debt with my current financial situation and upcoming stock incentives? Appreciate the help!

– Financially Confused at 26

Farewell Money Minder.

Response from THE MONEY MINDER:

Hello There,

Congratulations on your salary increase and thoughtful consideration of your financial situation. It’s great that you have a clear understanding of your income, expenses, and debt. When it comes to deciding between paying off debt or holding onto RSUs, a practical approach is essential.

Given the details you’ve provided, it seems like your debt is manageable, especially with your current income. While your AMZN stock may be performing well, it’s crucial to compare the potential returns on your investment with the guaranteed savings from paying off high-interest debt. In this case, focusing on eliminating your credit card debt and high-interest student loans would likely yield a higher financial benefit in the long run.

A balanced approach can be beneficial. Consider using some of your savings to pay off your credit card debt before the 0% APR period ends, as high-interest credit card debt can quickly accumulate. Next, focus on paying off the loans with higher interest rates, such as Loan 3, Loan 4, and Loan 5. Once those are cleared, you can address the rest of your student loans based on their interest rates, starting with the highest ones.

As for your RSUs, it’s recommended to have a diversified investment portfolio rather than solely relying on one stock. Selling a portion of your AMZN stock to pay off high-interest debt can provide you with a more stable financial foundation while still allowing you to benefit from potential stock appreciation. You can also consider setting aside a portion of your RSUs for long-term investment while using another portion to address your debt.

Remember that paying off debt is a guaranteed return on your money, while stock investments come with certain risks. It’s essential to strike a balance that aligns with your financial goals and risk tolerance. By strategizing your debt repayment and investment approach, you can work towards a more secure financial future.

All the best from THE MONEY MINDER.