Looking for a tax free, no risk investment with a guaranteed 6-18% return? This might sound too good to be true but it’s not. Once you have an emergency cash reserve it’s time to start thinking seriously about your investing strategy. Part of that strategy is finding the investment that will yield the highest return with the lowest risk. Tax considerations must also play a role when you start looking for places to put your money. If you could find a place to make a guaranteed, zero risk, tax free investment would you jump at the chance to put your money there?

Pay off credit card debt

If you have consumer debt on credit cards you qualify for this “opportunity”. Your credit debt and interest payments work against any positive interest you might be accruing. Lets say you’re earning 12% a year in the stock market. After taxes you’re only getting 9% unless you’re protected by a ROTH IRA. A 9% return is the average stock market return over thirty years (minus taxes). If you have an equal amount of money in consumer credit card debt and your paying 18% a year in payments you are still down. You are actually losing -9% a year with your current investment strategy.

Risk is a considerable factor as well. If the market is down you could be earning nothing or have negative returns in the short term. This would decrease your -9% to -18% in a hurry. If you tack on inflation you’re investment strategy is negative over -20 percent!

Paying off credit cards isn’t very exciting. It doesn’t feel the same as making new money. When you add up all the positive returns you are making and subtract your negative interest it only makes sense to stop the bleeding. Once you’ve got your debt under control start making positive investments.

You might consider different debt consolidation options, selling stuff, or drive a different car. All of which will help you in your investment goals.

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My sister asked me a question regarding debt consolidation. She wants to get her finances in order and didn’t know where to start. The following is her email and my response.

Hey, I had a question for you because your good with money. Bill and I’s plans have changed a little so we’re not looking for a house, but I have debt to pay off…it’s kinda an embarrassing amount, actually. But I’ve been good about payments, etc and haven’t gone over limits so my credit is in good shape. My question is how easy is it to get it moved from a credit card to a personal or other type loan, where the interest rate is lower? Is it something we could do or is that a pipe dream? I think if we work hard at it and are smart we could possibly get it paid off in a year. I just want to get this taken care of and gone so we can save and work on investments ASAP…rich dad poor dad kinda thing. I’d like to talk to you more about it and our plans but this might get the ball rolling.

Love you bro


Hey Jen,

Paying off your debt is one of the most important steps towards financial freedom. The savings you’ll see from not having to pay interest will be immediate. You’ll also increase your credit score considerably. If you have a low debt-to-income ratio you’ll get a better rate when you apply for a home loan. As far as getting a loan to consolidate your debt there are four major options people use: special debt consolidation loans, home equity loans, credit cards, and something new, prosper.com.

Debt consolidation options

Debt consolidation loans and services provide an all-in-one solution to lower your interest and simplify your payments. They will negotiate with your creditors for lower interest rates and payoff deals. From what I know about this option they tend to be the highest cost as compared to other options.

If you had a home (with some equity) you could lump your debt into a home equity loan. While this option might lower your monthly income and give you lower interest the overall cost is the most expensive out of all the options. Spreading your credit card payments over 30 years will lower the monthly bill but you’ll pay a lot more in the end. If you can, avoid this option.

If you have good credit and are just looking for lower interest I would apply for some zero interest balance transfer cards. Those cards will provide you with 6 to 15 months of interest free payments. Instead of paying 30% of your payment towards your interest you can pay 100% towards your debt. Another perk about those cards is that they won’t charge you any balance transfer fees. You will also have some incentive to have your debt paid off before they start charging you interest.

If applying for new cards isn’t an option try working with the credit cards you already have. Call the number on the back and ask them if they can lower your interest and increase your limit. This is why you want to increase your limit; the more credit you have available but aren’t using the better your credit score will be. For example, if you have a card with a $5,000 limit it is best to never cross $2,500 on your balance. After six months of not using your new balance call again to have them lower the interest rate and increase the limit.

Prosper.com is a site that connects individual lenders and borrowers. As a borrower you submit your debt and the lenders bid on it. The interest rate you pay depends on your credit worthiness and how competitive your offer is. The better your credit score the lower the rate you’ll have to pay the lenders. That’s nothing new but the idea of individuals lending to each other through a website is. It’s worth a try.

Payoff Schedule

There is a set amount of money you’re putting towards your debt each month. Lets say you have five accounts, which you pay $100 a month for each account. Your total debt payment is $500/month. Target and payoff the account with the highest interest first. Once you pay off the first account don’t change your total payments to $400. Instead, use the extra $100 towards the next account with the highest interest rate. Don’t lower your $500 payment commitment until you’ve eliminated all of your debt.

Here’s an example:

1sr phase of payments
A – 14% account – $100
B – 12% account – $100
C – 11% account – $100
D – 9% account – $100
E – 8% account – $100

2nd phase of payments

A – Paid off!
B – $200
C – $100
D – $100
E – $100

3rd phase of payments

A – Paid off
B – Paid off
C – $300
D – $100
E – $100


Get a credit report

Cleaning up your finances requires fixing any problems you might find in your credit report. With good credit you’ll be able to pay less interest on your existing debt and when you do buy a home you’ll save with a low interest rate. The government allows you to get a free credit report annually. You can read more about it here.

The all cash way of life

One final tip, try switching to an all cash way of life. Avoid using your credit cards for anything. Using checks, cash, or a check card will force you to live within your means. It’s something we’re doing and it feels good to know where we stand each month.

Word of warning

Most people who use debt consolidation restart the debt cycle and end up worse then when they started. If you aren’t willing to change your mindset that got you trapped in the first place don’t even think about debt consolidation. Remember, debt = risk. The more debt you have the more risk you live with. If you max out every opportunity for credit you are living a high-risk lifestyle. Not only will your stress level be higher but you’ll also be a slave to your creditors. Make a commitment to break the cycle and reclaim your freedom!

Wrapping up

Paying off debt feels really good. It is a lot of fun. Once you get the “anti-debt” bug it seems like all you want to do put every penny towards financial freedom. If you’ve got the “bug” you’ll be free in no time!

I’m cheering for you,


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