If you have received a lump-sum payment from an inheritance, tax refund or commission off of a large sale, you might be wondering what the best use of that money is. One thing you should consider is paying off debt, whether it be a mortgage, auto loan or credit card debt. When you pay off debt, you are receiving a guaranteed return on your money -- the amount of interest you would otherwise be paying on any outstanding balance. Depending on the type of the loan, and especially for credit cards, that return might be greater than anything you could receive by investing the money. In addition to saving interest payment, you will also repay the loan sooner, freeing up extra cash at the end.
Use a Lump Sum to Pay Down Debt
Use a Lump Sum to Pay Down Debt
Current Plan
Monthly Payment
$ 250
Total Interest
$ 15,147
Months to Pay Off
131
With Lump Sum Payment
Monthly Payment
$ 250
Total Interest
$ 5,529
Months to Pay Off
73
By making a lump sum payment, you will repay your loan 58 months earlier and save $9,618 in interest charges over the remaining term of the loan.