Should I use my nest eggs to pay off debts?

 A few years ago I inherited several shares in a great blue chip stock. My stock is currently worth about £4,500. That value has held relatively steady from the time I inherited the stock until now, despite all of the stockmarket turmoil of the past year. Meanwhile, I have about £44,000 in student loan debt and I have another nine and a half years of monthly payments to go on all of these.

I’ve read before that if the interest you’re earning on your investments is less than the interest you’re paying on your debt, you should use the money from your investments to pay down your debt.

This makes sense to me, but I have hesitated to take that advice so far. Am I being silly? Should I liquidate this investment immediately and use it to reduce my debt? Or am I right to hang on to it for potential future use (for example, if I lost my job or needed money toward a deposit on a house)?

Ask the Professionals: Francis Klonowski, the principal of Klonowski & Co in Leeds, says:

The perceived wisdom about paying off debts still holds good but not if it means losing liquidity - in other words, if it means using up all or most of your spendable capital.

The bit that worries me here, though, is your reliance on just one share. Whatever your feelings about this share and its rarity, this is a high-risk strategy. No matter how good it looks now, it can still go down as well as up. Relying on it as an emergency fund could be dangerous.

Many people have found to their cost that their “great” stocks have gone spur – just think of the banks, BT, Marconi etc.

One way to look at this is to consider the following: if you had £4,500 to invest and it was the bulk of your savings, would you buy this stock?

I might suggest a compromise. Why not work out the gain you have made since inheriting it, and sell just that amount? This way you can consolidate the gains while maintaining some attachment to your shareholding: then if it does go down you won’t lose out on the whole amount.

I still wouldn’t redeem the loans, though: given the relatively small sum, I think it would be safer to keep the proceeds in cash as a proper contingency sum. Normally I would advise keeping about six months’ expenditure for this.