When it comes to these types of loans, it’s better to take help of mathematics. The reason is that these are very costly forms of loans.
- Your first priority should be to have a big enough emergency fund in place – which can take care of any unforeseen money requirements
- Identify all loans with very high-interest rate (like credit cards)
- Get rid of them as soon as possible.
- Identify other high-interest loans like personal loan, car loans, etc.
- Also, identify low-cost loans (especially home loans).
- Under most circumstances, you can continue to invest and simultaneously pay off low-cost loans.
- As for the high-interest loans (personal and car loans), it depends on how much is the available surplus and what are the effective rates of interest. Mathematically, it might make sense to pay off these loans first, but you can take your own call.
You are the best judge of whether you should pay off loans, save or invest or balance the two. Give it some serious thought if you are in that situation.