By Jonathan Croswell, eHow Contributing Writer
Investing in your debt sounds like an oxymoron, but it's actually a wise approach to money management that has been around for centuries. Debt investments may not provide a stream of incoming cash, but they do reduce the money you owe while your cash assets and value remains stable, resulting in an overall financial gain for you. Like any investment, you don't want to put all your eggs in one basket, but with a little planning and information you can invest in your debt to build yourself a future.
Instructions
1. Step 1
Consider the risk of your debt investment. While you can't lose any of the money you invest, you don't want to overextend your wallet and come up financially short in other areas of your life. You will need to make sure you can do without whatever money you are planning on investing.
2. Step 2
Consider the rate of return in comparison to other investment opportunities. The rate of return on a debt investment is whatever the annual percentage rate is. On a credit card, this can be as high as 30 percent. Compared to a loan, which might carry an 8 percent rate of return, you will want to put your money into the credit card debt first.
3. Step 3
Balance your investments between debt and market, and short- and long-term. Investing in debt provides immediate relief, while other forms of investments tend to be longer-term. If you have long-term goals, such as owning a house or car, and have specific timeframes in which you hope to achieve these goals, you should strike a balance between the two.
4. Step 4
Close your highest-rate accounts first. As more accounts close and multiple debts close, you can either devote more of your money to your remaining debt accounts or invest in savings or market investments. If you do not have savings immediately available, you should build up a buffer to avoid having to dip into debt again.
5. Step 5
When your debts are paid, continue investing---this time in market investments. The financial freedom of debt relief will allow you to build towards larger goals, such as a mortgage, and set you up to receive better rates as a result of your responsibility with past debt accounts.
Safe Strategies for Financial Freedom
ContributorBy Gigi Starr, eHow Contributing Writer
When growing your money, it may feel better to stick to tried-and-true techniques that will help your cash increase without much risk. The key to abundance for the risk averse is saving, followed by refusing to take on new debt or use credit. These methods don't make a person wealthy right away, but they'll work out in the long run.
Pay Yourself First
1. The safest way to start getting free of debt is to save. That means transferring a little bit of your pay into a savings account as soon as you get it-- maybe even before. The easiest way to do this is to make the most of your job's direct deposit program. By authorizing that a percentage or set amount gets deposited in an interest-bearing account before you're paid, it takes the work and thought out of saving. Alternately, schedule an automatic withdrawal from your checking account once a month or bi-weekly. You'll soon see your balance increase, and that will inspire you to save more.
Resist the Lure of Credit
2. Credit card usage costs extra money in more ways than pesky interest charges. In fact, the cash spent on interest could be sitting in a CD earning a return, rather than lining the pockets of a bank. Credit makes items cost more than their value and creates an unnecessary debt burden. To become financially free, it helps to cut all non-emergency credit purchases. Resist using credit to buy groceries, clothing and other things that lose value the moment you walk out of the store.
Look Into Safe Investments
3. Even though the stock market may look tumultuous, investments are one of the basic methods of building financial wealth. The Motley Fool recommends two investments that cost little: the DRIP (Dividend Reinvestment Plan) or index fund. A DRIP is an ideal investment, with "more than 1,000 major corporations [offering] these types of stock plans, many of them free, or with fees low enough to make it worthwhile to invest as little as $20 or $30 at a time." An index fund, meanwhile, "has traditionally returned about 10% per year." Both of these are investments that you can invest in and let sit with little interference. They'll grow slowly and steadily, with a sizable yield after at least 5 years.
Resist Lifestyle Inflation
4. Superfluous cash due to a bonus, gift or plain luck can seem fun, and may lead to a bad habit called "lifestyle inflation." It's a reflex to spend more on pleasure purchases during high financial periods in reaction to other months in which money was tight. Don't do this. Lynnae of Being Frugal writes, "Your money is stretched to the limits in the lean months, so on a good month, you're tempted to spend a little bit more on fun stuff. But when the next lean month comes, there's no extra money left to help ride it out." Instead, deposit this money, or a good percentage of it, into an interest-bearing account so that it works for you.
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