Most people after they graduate from University and start working, their goal would be to pay down their student debt, and save up for housing, car, marriage, etc.
That’s not a wrong idea to have, paying your debts down and all, especially if you took a bank loan that charges about 5% per year in interest.
I took the CPF loan out from my mother’s account, and the interest is 2.5%, and honestly, I am not that much in favour of paying back them soon. Here’s why:
It’s a low-interest loan
Okay, it’s not exactly that low but it’s not that bad. It is comparable to say a housing loan. So it’s better that I extend this low-interest loan and use the excess cash to invest in assets that give higher long-term returns (like stocks). It is a form of interest arbitrage
Refer to one of our latest articles to understand why – How the Rich