Use a Lump Sum to Pay Down Debt

If you've 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 to consider is paying off debt, whether it is a mortgage, auto loan or credit card debt. When you pay off debt, you're receiving a guaranteed return on your money — you're saving the interest you would otherwise be paying on the loan. 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 on the interest payment, you'll also repay the loan sooner, freeing up extra cash at the end. A note of caution – Before making any lump sum payment, check your loan documents to see whether there would be any penalty for this prepayment. Also, be sure to notify your lender to apply any extra payments to the principal balance of your loan.