facebookWhat would be a better choice? Using lump sum of money to pay off one significant chunk of debt, or invest that money.? - Seedly

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Anonymous

26 Feb 2020

βˆ™

Property

What would be a better choice? Using lump sum of money to pay off one significant chunk of debt, or invest that money.?

Due to some pay adjustments, I might end up with a lump sum of money, I would like to know whether it would be better to use it to pay off more loans to be loan free sooner, or use it to invest and continue paying loans on the monthly basis.

Discussion (12)

What are your thoughts?

Hariz Arthur Maloy

Hariz Arthur Maloy

15 Jul 2019

Level 15Β·Independent Financial Advisor at Promiseland Independent

I'll pay off anything that is costing me 4% or higher. If not, I'll invest because I am confident in growing that money at a higher rate than 4%.

Being debt free is a little overrated. Some debt is ok and shouldn't be rushed to get cleared like your mortgage.

View 2 replies

Eric Chia

Eric Chia

21 Jun 2019

Level 7Β·Senior Financial Consultant at Prudential

I feel that the decision made has to depend on your risk appetite.

Your debt will incur an interest, say for example 2.6%p.a. in the case of HDB loan.

If you're confident enough to generate more than 2.6%p.a. return on investment with your lump sum, then you shouldn't use it to pay off the loan, but instead invest that lump sum to generate more returns.

Conversely, if you're risk adverse and would have kept the money in the bank, you should repay the loan.

There's no need to do this 100%, you can split the lump sum partially to repay loan or invest depending on your confidence level.

Also some loans charge fees if you repay early. Do take this into account!

Fergus Tan

Fergus Tan

15 Jul 2019

Level 5Β·Senior Partner at Vision Advisory Management

I actually did a spreadsheet before on a similar question. Please see https://rplg.co/slopu(https...

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