An Investment With a 10% Guaranteed Return (and $500 Extra a Month Too)

Investment returnAccording to the Federal Reserve, household debt recently weighed in at a whopping 117.5% of disposable household income. That means that on average, we as Americans owe more than we make.

Unless you've got an incredible sweetheart of a deal, if you have debt, you're paying interest on it. That makes paying off debt a great return on your investment -- even better, it's a guaranteed return for your money. And guaranteed returns are outrageously hard to come by these days.

But the Market's on Fire!

The stock market may be doing incredibly well at the moment, but it wasn't that long ago that the Dow Jones Industrial Average (^DJI) -- now around 13,250 -- had plummeted to as low as 6,440. That sort of roller coaster might be a necessary part of generating investment wealth in the long run, but it is anything but guaranteed.

On the flip side, U.S. government bonds provide an ironclad assurance that you'll get face value back at maturity and interest along the way. The big problem is that even the 30-year Treasuries only carry a 3.4% yield, right around the long-run inflation rate. Take taxes out of that yield, and the only guarantee you're really getting is that your money will lose its purchasing power less quickly than if you stuffed it under your mattress.

There's an Extra $500 a Month in Your Future

Every dollar you're paying in interest on debt is a dollar you don't have available to save or spend on anything else. On top of that, even the principal pay-down part of your debt payment is cash leaving your pocket.

Once that debt is gone, both the principal and the interest payments go along with it, freeing up all that cash flow on top of the guaranteed return from the interest rate.

For example, assume you've got $12,000 in credit card debt, at 10% interest. (Yes, even so-called low-interest rate cards are averaging 10.7% these days.) If all you did was pay the interest, you'd be shelling out about $100 a month -- and you'd be stuck with that debt the rest of your life.

If, instead, you committed $500 a month to paying that debt, the first $100 goes to interest, and the other $400 goes to reducing the balance.

Once the debt is extinguished -- in just over two years -- you've not only made a guaranteed 10% return, but you've also freed up that entire $500 a month.

How to Get Started

Of course, the toughest part of earning those guaranteed returns is coming up with the extra cash to put toward the payments. Ultimately, that comes down to either earning more or spending less. In today's employment situation, earning more may be easier said than done, but if you can get paid for putting in a few more hours or find an extra part-time job, it'll be a ready source of cash.

On the flip side, we all have places where we could potentially cut back, such as:

  • Carpooling or taking mass transit rather than driving alone
  • Bringing lunch and/or coffee from home instead of buying it
  • Adjusting the thermostat up a few degrees in summer and down a few in winter
  • Cutting back on entertainment to just the things that really matter

Once you free up that cash -- either through working more or spending less -- you can go after that guaranteed return of paying off your debts. And when the sacrifices seem hard to handle, just remember how much "extra" money you'll have when you're free of debt. In that context, cutting back now seems like a small price to pay for future riches.


NEXT:

Learn about investing from the comfort of your own home.

Portfolio Basics

Take the first steps to building your portfolio.

View Course »

Investment Strategies

Learn the strategies you need to build a winning portfolio

View Course »

Add a Comment

*0 / 3000 Character Maximum

36 Comments

Filter by:
Jackie

Wow, I came on here to see how to get a 10% return on a $500 investment. This article has nothing to do with that and this kind of fuzzy logic is why most of America is screwed financially. Most of the people I know are so irresponsible with money. I am 26 years old and I know more about finance than you! By the way, I already figured out a way better way to get a 10% return on my $500. High Performing Dividend stocks. It worked for me on my first $100, so I am going to continue doing that with an additional $400.

Thursday at 1:19 PM Report abuse rate up rate down Reply
Viko Harja

just share second options for developing your financial invesment, been join with them for couple months and they doing great :) 2 - 5% monthly
http://thehadi.wix.com/hedgefunds

January 07 2013 at 6:02 AM Report abuse rate up rate down Reply
pkuhn41

mmmmm

March 21 2012 at 7:32 AM Report abuse rate up rate down Reply
pkuhn41

jjjjssssfttrthhhyyyyyh[98362432235697870-097654322111112345678i7890-==-0987654321```124778457447477444444444445544455554545777899+6544125638gglfilkljyijkjhhjklkj

March 21 2012 at 7:32 AM Report abuse rate up rate down Reply
Holly Pc

allways about credit card dept. Do not have the cash to buy buy buy.. DO NOT buy.
What about auto loans.
what about mortgages.

March 20 2012 at 8:50 AM Report abuse rate up rate down Reply
alfredschrader

No, the best investment you can make is in yourself. You can take a 16 week culinary course and learn to prepare foods. For example, you could pay $99.00 for a serving of Coc Au Vin at a New York restaurant, or prepare it yourself with $2.00 worth of chicken, onions, and potatoes. You can call an appliance repair man, or take an appliance repair course and repair your washer/dryer with a $25.00 part, not a $200.00 service call.
You can learn basic plumbing and replace the drippy washers in your faucets for 99 cents instead of a $200.00 plumber service call. Basically, you can learn to do almost anything and save millions over a lifetime....Al-

March 20 2012 at 7:35 AM Report abuse rate up rate down Reply
lugmario

10% on a credit card, get real. At on time a law was passed where it could not reach over 12.5%. Now after lobbying and loopholes, it can be as high as 30% on a card.
I have a home depot card that if I make only the $280 minimum payment, my balance for the next month drops basically a dollar.

March 20 2012 at 6:28 AM Report abuse rate up rate down Reply
Michael

I think the author's employer needs to be looking at ways they can lower their overhead.

March 20 2012 at 6:21 AM Report abuse rate up rate down Reply
Setanta

WE WANT THE SAME EXACT DEAL THAT HILARY C. GOT with cattlegate
and then what PELOUSEY GETS from tbooone pickens.

March 20 2012 at 12:21 AM Report abuse +1 rate up rate down Reply
bucktownboy

SO someone should pay $500 a month towards debt when they couldn't aford to live on spending just $500 before? And is hat person not spending money now, or is that $500 a month payout in addition to spending but not on Credit? And if its that easy, why not pay $1000 a month towards credit cards and pay off your debt earlier?

March 19 2012 at 10:59 PM Report abuse rate up rate down Reply