Kill Debt or Invest Dilemma

OPTIONS: THE SAME PRINCIPLE APPLIES FOR YOUR LUMP SUM OR MONTHLY CONTRIBUTIONS

- Marius Fenwick

This debate has continued since people could finance items and invest their hard-earned cash. I will weigh the various options to provide some guidelines and hopefully generate some information that can assist investors in deciding whether to invest or eliminate debt.

First, a few facts to consider:

If you borrow money for a purpose, the amount you repay increases with a longer repayment term, even if the interest rate remains the same across various periods (some may argue that this is logical).

Therefore, it stands to reason to either reduce the term of your debt or kill it as quickly as possible. But there is a caveat.

There is a distinct difference between good debt and bad debt.

"General debt" usually has a higher interest rate than "asset debt." This means that the interest rate on your house is likely lower than that of your car, credit card, overdraft and clothing account debt.

So, what is the best? Should you pay off your bond or invest?

The same principle applies whether you intend to use a lump sum or monthly contributions. I will use a scenario where someone receives an increase of R5 000 per month.