“I have $100,000 in credit card debt, but $60,000 in bitcoins. Should I use that to pay off the debt or hold the bitcoin for the long term?” That’s a question a reader recently wrote in MarketWatch Picks, and as part of our new “Ask the Advisors” column, we asked four financial planners how they would advise this reader.You can use this tool to be matched with a financial advisor who might meet your needs.). Here is what they told us:
Even though your bitcoin holdings may make you very rich, the pros say you should tackle credit card debt first. Indeed, bitcoin is both highly speculative and poorly regulated, says certified financial planner Lisa Weil. “There’s really no way of knowing where it will go in the short term or longer term. You could triple your money or lose it all,” says Weil. (Note that as of Thursday, May 11, Bitcoin was down around 60% from its high of $69,000 in November 2021.)
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Your credit card debt, on the other hand, is a known and certain reality. It will not go to zero on its own. More importantly, the longer you wait to pay off your credit card debt, the more that debt will grow as you accrue interest at potentially penalizing rates. “Unless you have other resources to pay off that debt and can really afford to speculate and potentially lose everything you put into bitcoin, I would recommend that you first make sure your debts and particularly high-interest debts are paid,” Weil says.
Certified Financial Planner John Piershale recommends liquidating bitcoin and using it to pay off debt, as credit card debt is usually very high interest. “Be sure to withhold tax on any bitcoin earnings or you’ll go from frying pan to fire with the IRS. If by any chance you’re in a period of zero credit card interest, you You can wait to cash out crypto until this 0% period is over if you’re feeling bullish on Bitcoin,” says Piershale.
Another way to think about the question is, “Would you be willing to go into debt on your credit card to buy bitcoin?” Even the most diamond-rich crypto holders would probably say no. Investments including bitcoin have their place. Having high-interest debt and accumulating high interest charges is more like gambling than investing. It takes a lot of things to go perfectly for this to end well and extinguish that debt,” says Elliot Dole, Certified Financial Planner at Buckingham Strategic Wealth.
That said, your decision will also depend on how much you want to play. Matthew A. Ramos, Certified Financial Planner at MAR Financial Planning, says the key variable to consider here is the interest rate on your credit card debt. “Compare that to what you expect from bitcoin per year. Paying off the $60,000 credit card will guarantee you a return equal to the interest rate. If the interest rate on your credit car is 15%, the balance will double in about four and a half years,” says Ramos. If you think bitcoin will more than double in five years or gain more than 15% per year, you might want to consider holding it.