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Tags: cryptocurrency | means | debt | bitcoin

What Cryptocurrency Means for Your Debt

What Cryptocurrency Means for Your Debt
Elnur | Dreamstime.com

By    |   Wednesday, 11 September 2019 03:11 PM EDT

You’ve likely seen Bitcoin, Ethereum and Litecoin gracing the headlines of financial news sources for months. Cryptocurrency is a relatively new type of investment, with many proponents of it believing the technology could change our entire economic landscape.

Seems great, right? Although the potential returns associated with crypto can be immense, the risk of loss is even greater. After all, cryptocurrency is an incredibly risky investment, said Angela Walch, a law professor at St. Mary’s University in Texas who studies cryptocurrency and financial stability. Bitcoin, for example, was valued at nearly $20,000 in December 2017, compared to around $12,000 today.

“At the moment, I would view purchases of cryptocurrency as akin to purchases of lottery tickets,” Walch said. “It is completely unpredictable whether you will have a return on your purchase. Cryptocurrency prices have been all over the map, often for no obvious reason.”

Although you might be tempted to invest in cryptocurrency, you might also be worried about the implications of doing so — especially if you have debt. Here’s what you need to know. 

Should you ever prioritize investing in cryptocurrency over repaying debt?

Whether it’s student loan debt or high-interest credit card debt, the unpredictability and volatility of the cryptocurrency market means you should almost always eschew investing in crypto in favor of focusing on repayment. “When you have debt, you shouldn’t be taking that kind of risk with your money,” said Beverly Harzog, consumer finance analyst for U.S. News & World Report. “You should just be paying down your debt.”

If you’re already struggling to meet your monthly payments, you should definitely avoid investing in cryptocurrency, as the last thing you want to do is default on your debt obligations. Instead, look for ways to lower your payments, like refinancing your student loans or reducing balances where you can save on interest. 

One thing is certain: you should never go into debt to buy cryptocurrency.

Consider using the cryptocurrency you already own to pay down debt

What can be accepted as a loan payment is determined by the terms of a loan, Walsh said, adding that she doubts there are many loans (if any) that were made in dollars that would accept Bitcoin or another cryptocurrency as a form of loan repayment.

Student loans, for example, can’t be directly repaid with cryptocurrency, but you could sell your investment for loan payments. However, because of the unpredictability of cryptocurrency, taking this route means you risk not being able to make a loan payment if your crypto investment tanks.

Similarly, your crypto can help you avoid taking on more debt, but it will also almost always involve selling your digital currency for actual dollars. While some colleges, such as King’s College in New York, actually accept Bitcoin for tuition payments, the vast majority do not. If you’re looking to minimize the loans you take out, your stash of cryptocurrency can help lessen the financial burden.

The same is true when it comes to getting a mortgage. Cashing in your cryptocurrency can help you easily cover a down payment, according to Redfin. But when it comes to using your digital currency in the real world, one thing is crucial: documentation. You’ll need to be able to track all your transactions come tax time.

Ultimately, the risks outweigh the benefits

“I think a lot of people get excited — they think it’s a get-rich-quick thing,” Harzog said. “I think that’s why some people buy lottery tickets. But it’s not a smart investment unless you are out of debt, you have a healthy emergency fund, you’re educated about the outcomes, and it’s just something you want to try.”

In the end, relying on crypto for financial success is a risky strategy and one that should be avoided if you hold debt of any kind.

Joe Resendiz is a Research Analyst at ValuePenguin, where he focuses on personal finance and credit research to assist consumers. Previously, Joe specialized on public sector and infrastructure financing at Goldman Sachs. He graduated from the University of Texas at Austin with a BBA in Finance.

© 2023 Newsmax Finance. All rights reserved.

In the end, relying on crypto for financial success is a risky strategy and one that should be avoided if you hold debt of any kind.
cryptocurrency, means, debt, bitcoin
Wednesday, 11 September 2019 03:11 PM
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