Using Crypto to Pay Off Debt: Is It the Right Choice?


Cryptocurrency has gone mainstream. With Coinbase recently going public and PayPal now accepting Bitcoin for payments, the ability to pay off debt with crypto is now a reality. Many creditors accept it directly. Others require you to convert it to cash. Either way, the age of the stored value token is here. Crypto is a real medium of exchange. 

Plug your outstanding debt into a debt snowball calculator to see what’s what. The objective is to pay off the smallest balance first. Here’s a look at strategies for using crypto profits to pay off debt.

Should you sell your crypto to make debt payments?

To figure this out, you need to do a basic profit and loss analysis. How much can you make on your crypto investments and is cashing them in worth saving yourself the interest payments on your outstanding debt? With a volatile crypto market, that’s difficult to determine. First, calculate how much you’re paying in interest on your debt. Then, look at your crypto performance.   

According to WalletHub, the average interest rate on a new credit card is 19.02%. For established accounts, that drops down to 15.10%. For the sake of this exercise, let’s call it a flat 15%. If you have $10,000 in outstanding credit card debt, you’re paying $1,500 a year in interest to carry those balances. That’s certainly a number you want to get rid of.   

On the other side of the equation, Bitcoin (BTC) has produced a year-to-date return of 64.69%. If you go back 12 months, that gain increases to 305.69%. Ethereum (ETH) is up 689.51% over that same 12-month period. Based on those numbers, selling your crypto to pay off debt is not a cost-effective move. You’re better off paying the interest. 

Using crypto profits to pay off debt

Investors with a crypto portfolio containing $5,000 in Bitcoin and $5,000 in Ethereum made a profit of $5,000 in the past 12 months. Those who bought crypto as stock can sell fractional shares and turn profits into cash. Investors who bought the actual coins don’t necessarily have that option. They could be faced with having to sell all their holdings to cash in.

This is an important distinction. You can invest in crypto without ever actually holding any crypto in your account. Trading platforms like Robinhood allow you to buy and sell fractional shares, so you can invest as much or as little as you like. Coinbase is an actual crypto exchange where you buy and hold the cryptocurrency in a crypto wallet.

If you’re able to offload a fraction of what you own—essentially the profits you’ve made on your initial investment—paying off debt with crypto is a smart move. Selling a single token for thousands of dollars to pay off a debt equal to that is not. You’d be giving up any chance of additional profits. Crypto is still worth holding, so don’t waste what you have in hand.       

Kevin Flynn 

Kevin is a former fintech coach and financial services professional. When not on the golf course, he can be found traveling with his wife or spending time with their nine wonderful grandchildren and two cats. 


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