If you have spare cash lying in your bank saving account at the moment, will you rather use it for investments eg ETF or use it to clear of your current housing loan just to reduce debt? - Seedly
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Anonymous

Asked on 15 Sep 2018

If you have spare cash lying in your bank saving account at the moment, will you rather use it for investments eg ETF or use it to clear of your current housing loan just to reduce debt?

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Summer
Summer
Level 5. Genius
Answered on 23 May 2020

I would say that clearing off your debt should always be your number 1 priority! Debt will only accumulate over the years with the power of compound interest and your investments might not even yield positive returns consistently, to put it frankly. Also, if you ever lose any source of income one day, you would not want to be troubled by your debt obligations.

Always pay off your debts. The relief of being debt free is one of the best feelings in the world personally :)

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Nicholas Chan
Nicholas Chan
Level 6. Master
Answered on 18 Sep 2018

Depends on the cost of debt. If low, better to invest it at higher yielding opportunities. Otherwise, pay it off.

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Jay Liu
Jay Liu, Diploma in Accountancy at KHEA
Level 7. Grand Master
Answered on 18 Sep 2018

Service your house repayment at the max amount you can handle. Leave around some cash for investment.

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Jason Sin
Jason Sin
Level 8. Wizard
Answered on 18 Sep 2018

Clear the housing loan assuming loan interest is higher than rate of return from investment

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Jeff Yeo
Jeff Yeo, amateur Social contributor at School of social sharing
Level 7. Grand Master
Answered on 16 Sep 2018
  1. Pay off the min amount of loan

  2. put everything else in excess into an investment that would generate returns that I can use to pay off the loan

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By investing into ETF, most people are looking at compounding their position rather then taking the dividends to cover the loans interest + loan payment.

to have certainty, one can consider clearing the housing loan esp when cpf accured interest are compounding against you.

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Jonathan Chia Guangrong
Jonathan Chia Guangrong, Fund Manager at JCG Fund
Level 9. God of Wisdom
Answered on 15 Sep 2018

Do both if you can. Service the minimum and grow your investments. Once the latter is of a sufficient size, can consider liquidating some to redeem the outstanding mortgage partially or fully

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Yong Kah Hwee
Yong Kah Hwee
Level 8. Wizard
Answered on 15 Sep 2018

It depends! Are you confident that your investments can yield you more money than the loan interest rate? If not, you should clear off your loans first before starting to invest.

For example, if you have $20k to spare. Your housing loan interest rate is, say, 5% per annum (I dont know the actualy % so i am just using a random number). If your investments yield 4% an annum, you are making a loss and also taking a risk (in terms of stock prices). You'd be better off clearing your loan in this case :)

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Teresa Wu
Teresa Wu
Level 4. Prodigy
Answered on 15 Sep 2018

Do both!

Reduce the loan and invest some.

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HC Tang
HC Tang, Financial Enthusiast, Budgeting at The Society
Level 9. God of Wisdom
Answered on 15 Sep 2018

Housing loan interest would usually be high and immediate effect than what an ETF may return to you unless you have a 5 figure sum. Thus debts reductions to save on interest is the right way to go for the 2 options here.

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Gabriel
Gabriel
Level 8. Wizard
Answered on 15 Sep 2018

Personally, I would prefer to clear off my debts first to be debt free, to have a peace of mind and prevent the interest payable from accumulating as much as possible

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