£7,500 Bonus Dilemma: Pay Off Debt or Invest for Growth?
A financial decision lies ahead for a UK-based worker after receiving a £7,500 bonus. The extra cash could go towards reducing debt, investing, or a mix of both. With three clear options—overpaying a car loan, cutting mortgage costs, or boosting an existing stocks and shares ISA—the choice depends on interest rates and long-term strategy.
Current debts include a high-interest car loan and a mortgage due for renewal in 18 months.
The car loan carries the heaviest burden, with a £12,000 balance at 12.9% interest. Monthly payments stand at £395, but overpaying with the bonus would slash the remaining debt and shorten the term. Financial experts often advise clearing expensive debt first, as the 12.9% interest saved acts like a guaranteed return—higher than most investment gains.
The mortgage, by contrast, has a £97,000 balance at 4.1% interest, with monthly payments of £610. Overpaying here would save less in interest, but the writer plans to remortgage in a year and a half. Market rates could shift by then, making early repayment less urgent. The third option is adding the £7,500 to a stocks and shares ISA, currently valued at £60,000 and focused on the S&P 500. While investments offer growth potential, they come with risk. Diversifying beyond US stocks might also reduce exposure to regional downturns. Consumer credit rates in Germany, often seen as a European benchmark, have stayed high since 2023. Bundesbank data shows average rates above 8% for personal and car loans, peaking at 7.51% for new consumer credits in January 2026. This trend reinforces the case for tackling the car loan first.
Using the bonus to overpay the car loan would cut the highest interest cost immediately. The 12.9% rate saved exceeds likely investment returns and the mortgage's 4.1% charge. With remortgaging on the horizon, the writer could then reassess long-term savings once the expensive debt is cleared.
