Cancel debts or invest? What's best to do with the aguinaldo

As Argentines receive their year-end bonus, known as the Sueldo Anual Complementario (SAC), a common dilemma arises: should this extra income be used to pay down debts or be put towards investments? Financial advisors offer differing perspectives, emphasizing that the optimal choice depends heavily on individual financial circumstances.

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Using the aguinaldo to pay off a debt is a way to invest in peace of mind and greater savings capacity going forward.

Paula Spitaleri, director of Balanz Academy, suggests that using the aguinaldo to pay off debt is essentially an investment in peace of mind and future savings capacity. Clearing outstanding obligations can free up monthly cash flow, enabling individuals to pursue other financial goals or establish an emergency fund. For those whose finances are already in order, the bonus can serve as a starting point for investing, helping them achieve medium and long-term wealth-building objectives.

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For those who already have their finances in order, the aguinaldo can be the starting point for investing: giving purpose to the money and getting closer to medium and long-term goals that allow wealth to be built over time.

However, Sergio González, CFA and head of Asset Management at Cohen Aliados Financieros, along with analyst Martín Mejía, advocate for prioritizing debt reduction. They argue that the interest rates on credit cards, personal loans, and installment plans often significantly exceed the returns offered by most retail investment instruments. Prepaying or canceling high-cost debts provides an "invisible but powerful return" by lowering monthly financial burdens and increasing available cash flow. This not only improves liquidity but also strengthens net worth and reduces vulnerability to income shocks.

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The cost of credit (cards, personal loans, installment plans) frequently operates at rates that widely exceed any retail investment instrument.

For individuals with minimal or no high-cost debt, González and Mejía see the aguinaldo as a prime opportunity to "dollarize" savings and protect purchasing power against Argentina's volatile exchange rate. In such cases, they recommend investing in instruments like the D30S6 Treasury Bill. This investment is tied to the official exchange rate's performance plus an additional 3.5% annual gain, with a maturity date in September 2026, designed for savers seeking to maintain value even if the dollar appreciates.

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Prepaying or canceling high-cost obligations early provides an 'invisible but powerful return,' combining a lower monthly financial burden with the liberation of future cash flow.