Continue with ISA or overpay loan?

chelseablue

I have a personal loan with Nationwide, balance today is £7,983. Interest is 2.9% 
Usual monthly payment is £187, but I have been sending an extra £300 a month
I have a Stocks & Shares ISA that I put £200 a month in
I'm thinking of stopping paying into the ISA until the loan is paid off, and sending that money to the loan. So overpay the loan by £500 a month 
Is this a good idea or am I better off putting money in the ISA still? 

eskbanker

Chances are that over the long term you'd expect to beat 2.9% from a well-diversified investment portfolio so in strict financial terms you're probably better off putting that money into the ISA.  However, there will be your own circumstances to consider too, and many prefer to repay debt before saving or investing - do you have savings too, earning less than 2.9%?

chelseablue

eskbanker said:

Chances are that over the long term you'd expect to beat 2.9% from a well-diversified investment portfolio so in strict financial terms you're probably better off putting that money into the ISA.  However, there will be your own circumstances to consider too, and many prefer to repay debt before saving or investing - do you have savings too, earning less than 2.9%?

Yes I have £2,000 in my Marcus account (currently 1.5%) but I'm a homeowner so would like to keep these for any emergency's.  

eskbanker

Most would advocate an emergency fund of at least 3-6 months worth of expenditure as a rule of thumb, so investing while only having £2K in savings, plus a relatively substantial loan, would seem unusually brave....

chelseablue

...... or stupid haha! 

Should have mentioned I also have £2,500 in my Flex Direct account earning 5% until October, so £4,500 cash savings. I add £500 a month to the Marcus account. Not sure what the best strategy is? I could just let the loan run at £187 a month until its gone and save £1,000 a month but not sure that's the best way either  

Albermarle

There are plenty of threads on the forum on this topic of - paying off low interest debt or investing ?
It depends on circumstances but usually the rational financial answer is to invest , but we are all humans and often the emotional reaction is to want to pay the debt off as quick as possible . So maybe doing both at the same time , as you do now , is as good a strategy as any , as long as you are happy with it. 

chelseablue

Albermarle said:

There are plenty of threads on the forum on this topic of - paying off low interest debt or investing ?
It depends on circumstances but usually the rational financial answer is to invest , but we are all humans and often the emotional reaction is to want to pay the debt off as quick as possible . So maybe doing both at the same time , as you do now , is as good a strategy as any , as long as you are happy with it. 

Thank you, I might leave the loan running at £187 for a few months while I build up a bigger pot of savings. I'd like to get to 6 months worth of salary saved in case of any job loss. Plus my car is 14 years old.
I get my bonus in March which I'll probably send to the loan, that should reduce it to about £6,000