Should I Use a Fifth of My Portfolio to Pay Off $45K Debt from Health Issues?

It’s an unfortunate thing that even people with decent health insurance can end up with medical debt. In fact, medical debt tends to be a big cause of personal bankruptcies.

In this Reddit post, we have a retiree who’s accumulated $45,000 in medical debt. And they’re wondering if they should use a fifth of their investment portfolio to pay it off.

It’s a good thing that the poster is trying to be proactive about paying off their debt. But I’m not sure that raiding their portfolio is the best course of action.

The danger of a big debt payoff

Medical debt can be costly. And the longer you carry it, the more interest you might pay on it.

But taking one-fifth out of your savings to pay off medical debt, or any type of debt, is a potentially dangerous thing. And the reason is that it could leave you with inadequate funds for the remainder of your retirement.

In this case, the poster clearly only has about $225,000 in total assets. That’s not a lot.

The poster also says they get a monthly pension as well as Social Security. But I don’t know how much money that amounts to and whether it’s enough to cover their expenses in full.

It may also be that the poster’s pension and Social Security can cover their basic expenses, but that it leaves them with little room left over for one-off expenses, like home repairs or a surprise healthcare bill. So I think the poster should proceed with caution before taking such a large chunk out of their portfolio.

The poster may be able to negotiate some of their medical debt if they can prove that repaying it is a burden. Or maybe not. But the poster also doesn’t say what sort of interest rate they’re paying on their debt. If it’s fairly low, then it could make sense to leave their portfolio alone.

It’s best to turn to a financial advisor for help

There are a lot of missing pieces of information in this post that make it difficult to offer up concrete advice. But even with more details, I would tell this poster the same thing — to talk to a financial advisor and see what they have to say.

A financial advisor can look at the poster’s total picture and help them figure out the best way to tackle their debt. They may be able to offer suggestions the poster hasn’t thought about. And if they do tell the poster to use their portfolio to pay off that debt, they can find ways for them to cash out assets as strategically as possible.

Of course, one final thing the poster here may want to consider is taking a part-time job to drum up more income. It’s unclear, though, as to whether this is an option based on their health status now. But if so, it could minimize the hit to their portfolio while allowing them to work their way out of debt over time.

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