It’s the discussion that never gets old: How to find good investment opportunities. If you look online or speak to a financial advisor, you’ll likely hear about the most common and popular investment options. They all follow the same pattern of low return for low levels of risks and increasing returns with increasing risks. But there’s one risk-free investment opportunity that yields double-digit return—and most of us already have access to it. It’s repaying your own debt. Do you want to take a second to read that last sentence again? That’s right, you heard me, repaying debt is one of the best investment opportunities out there, if not the best.
Not losing money is like making money How can repaying debt be an investment? Well, not losing money is actually the same as making money. In both cases, you end up with more money at your disposal than if you’d done nothing. For debt repayment, it’s all about the interest rate; the higher it is, the more money you lose, which in turn makes paying down your debt an even better investment opportunity. I’ll save you the math on it, but repaying a 15 percent credit card debt will save you the same amount as you’d earn with a 12 percent return-on-investment (ROI) opportunity—and those types of opportunities don’t come by often.
There is no risk If you’re looking for a high ROI, chances are you’re willing to take on significant risk. But risky, high-gain investments don’t come with a safety net. That’s another great aspect of debt repayment; you’re making great returns with no risk at all as you know in advance what you’ll be paying and how much you’ll be making up front.
It depends on your situation Of course, debt repayment isn’t always the best choice; it depends on a number of factors and needs to be evaluated in light of your current situation and the other investment opportunities available to you. Personally, I think debt repayment should always be in the top list of investment opportunities you’re considering.
Interested in more ways to help improve your financial acumen? Be sure to watch my course Financial Literacy: Making Investment Decisions at lynda.com.