Which choice is better to pay off debt or investment

Many people are hesitant about whether to put money to pay off debt or to invest first. Therefore, it divided the money into 2 pieces, the first piece to cover the debt and the next piece to invest. And no matter which method you choose neither choice is wrong.


At first, it investigated a sum of money to put on debt or invest. Assume that there is an amount of 100,000 baht. Then classify all the debt that has interest together, such as high-interest debt, early reduction debt, debt with fixed interest etc.

Debt type

Interest rate

The amount of debt remaining

Informal debt

20% per week

10,000 baht

Cashcard

28% per year

5,000 baht

Credit card

18% per year

30,000 baht

Home loan

7% per year

2,000,000 baht

Car loan

3% per year

300,000 baht



Note: The interest rate shown is only an example to accompany the article.


Next, explore the investment products and see what they are. With an estimate of what percentage of return per year if investing money

Investment channel

Return

Fixed deposit

2% per year

Fixed Income Fund

2.5% per year

Mixed Fund

5% per year

Property Fund

8% per year

Equity Fund

9% per year

Stock

10% per year



Note: The returns shown are just examples for supporting the article only.

When receiving the said information, go back and see which types of debt should be covered first. Of course, the debt that must be eliminated the most is a debt with high-interest rates. This means that if there is a lump sum, it must be over whether it is informal debt, the credit card debt, cash card, and from the example, it can eliminate high-interest debt. By using the amount of 45,000 baht


For car debt, which is a fixed interest rate Which will calculate the interest that the debtor must pay from the whole principal fixed throughout the contract. Even if you pay installments in installments in installments, so if you think of bringing money to cover, it won't reduce interest There is only a reduced principal.


Came to the house debt, which is the debt type of early reductionsใ Before making a topping, it must be compared with the return on investment, which type is the most beneficial. From the example when deducting the amount used to cover the high-interest debt, it will be reduced to 55,000 baht, then replicate the said amount of money for 1 year.

Investment channe l

Investment

Return

1-year investment, returnable

Fixed deposit

55,000 baht

2% per year

56,100  baht

Fixed Income Fund

55,000 baht

2.5% per year

56,375  baht

Mixed Fund

55,000 baht

5% per year

57,750  baht

Property Fund

55,000 baht

8% per year

59,400  baht

Equity Fund

55,000 baht

9% per year

59,950  baht

Stock

55,000 baht

10% ต่อปี

60,500  baht


Note: The returns shown are just examples for supporting the article only.


From the example, even if the home loan is a type of reduction but from the example above with the remaining 55,000 baht, even to cover the house debt. The principal was reduced slightly and has no effect on interest rates at all.


At the same time, if investing money may be more beneficial. Especially if good returns are received. More than that If you increase your investment every year, for example, start investing 55,000-baht next year, put in another 60,000-baht next year, increase to 65,000 baht, meaning adding 5,000 baht per year will greatly increase the return received. (Assuming that the average return is the same every year) continuously increasing.


For example, it is found that home debt can be paid only when a large amount of money is paid, such as having 2,000,000 baht of remaining installments paid by 7% interest. Total payment (25 years) is equal to 4,240,674 baht. Of this amount, the total interest expense is 2,240,674 baht.


Let's say that there are 500,000 baht and want to cover the house debt. Will make a balance of 1,500,000 baht with the same conditions, namely 7% interest, remaining 25-year installments, indicating that the installments are 10,601 baht per month. Will save interest of 560,160 baht (2,240,674 - 1,680,514)


However, if investing 500,000 baht to invest, it has the same benefits. But there is a condition that must receive good compensation Close to or higher than the house interest rate (from the example, returns of 7% or more), but from the nature of the investment, there is a risk, therefore, cannot guarantee whether a good and consistent return will be received or not.

Related product or service

Digital Banking

SCB EASY App

Related Stories

Other stories you may be interested in