Invest in Your Own Debts – A 23% Return

Or, “How to position yourself to make HUGE wealth-building profits!”

We live in a world that thrives on debt–the richest industry on planet earth–rigged for unlimited expansion!

Having grown up in a debt-ridden society, we tend not to put a lot of attention on debts, at least until something goes wrong. Very few people, if any, are debt free. In the US, very few people are solvent = they have sufficient cash resources to cover their debt load, a dangerous situation in anything but a thriving economy.

Debt is no friend to man, but does that mean all debt is bad? Being addicted to it, I doubt we will ever be totally rid of debt, but there are circumstances where debt does make sense. Debt used to create returns higher than the debt service (cash flow and/or profit) is totally acceptable providing there is sufficient finance in it to weather economic storms.

All other debt should be classified as a potential
lethal weapon; it can and will be used against you.

We have not been well educated on the principles of cash, debt, or wealth management. Signs of this are everywhere. The average net worth of Americans is $250 (this was before the current economic downturn); we have a government borrowing trillions to pay off debts; companies are going bankrupt in record numbers; governments are failing financially; and worldwide debt is over $40 Trillion and accelerating. This is not a healthy economic environment.

So, what we can we do about it?

As a real estate investor, you are in the unique position to profit from almost any economic environment wayward bankers can throw at you. Providing you have the skills to do this, the only other things that can get in your way is lack of cash flow, lack of equity, and low credit scores, and probably the last place you look for solutions is in your own backyard.

Increasing one’s income is always the best solution, but one of the fastest ways you can improve your financial situation is to simply pay your debts down quickly. To fully understand this, you need to look at how debts affect you financially:

  • Debts eat up cash flow;

  • They encumber your equity;

  • They reduce your net worth;

  • If too high or too many, they affect your credit scores

These are the very tools that you need to successfully build wealth.

Also, looking at the future, debts play another destructive wealth building role: They tie up huge amounts of future income in interest expense that could be used to super-accelerate your wealth building activities.

You are no doubt aware of how much mortgage interest you will pay over the next 30 years. Did you know that you could–

  • Save up to $7.00 in future interest for every extra $1.00 you pay down on mortgage principal?

  • Save up 75% or more in future interest payments by paying off your mortgage in 10 years instead of 30?

As a note to substantiate this, I have clients who have been using my debt elimination software for a number of years now and they are saving on average over $300,000 in future interest payments with an average pay off time of just over eight years. What could you accomplish as an investor with an extra $300,000?

By the way, if you look at the savings created as a return on investment, the average annual return would be over 23%.

Okay, so you don’t want to wait 10 years before you can start investing in real estate. I agree! But if you are not in a position to invest in real estate right now then do yourself the biggest favor you could ever do and start investing in your own debts. If you do, here’s what will happen:

  • Your cash flow will increase;

  • You will free up some equity;

  • Your net worth will improve;

  • Your credit scores will improve

Now, let’s assume that you have no funds available for debt investment. Well fear not, there is a way that you can still do this. It’s a little slower, but no less effective (and this is a subject thoroughly covered in my book Debt-2-Riches and far too lengthy for this article).

Even if you can invest in real estate right now, investing some of your funds in personal debt elimination will enhance all of your wealth-building activities.

The point here is you can turn things in your favor relatively quickly (from months to a year or two), and start on the road to greater future riches, and never have to look back. Here’s a rule that you should carry forward with you into every transaction you ever do:

Never minimize your financial strength!

And the best way to do that personally is–get out of debt!

About the Author:

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A content contributor to the original CREOnline.com.