No, this is not some futures or commodities trading strategy. You
don't have to join a cult or an MLM. And you can do this for years.

The only qualification is that you have a mortgage or home equity
loan.

You can achieve more than 100% returns on your money simply by
paying extra money on your mortgage each month or as often as
you like.

Here's how it works: If you have a 30 year mortgage at 7%, for
each $100 of your loan amount you will end up paying as much as
$209 in interest. So within the 30 years of paying off your
mortgage, you will repay that $100 that you borrowed PLUS you
will pay up to an additional $209 in interest.

So if you "invest" an extra $100 along with your first mortgage
payment, you will end up saving $209.42. That's a return on your
"investment" of 109%! And it's guaranteed.

Plus you have just lowered the amount you are in debt and
reduced the time it will take for you to pay off your mortgage. How
many cold-calling investment brokers can offer you a deal like that?

So you could look at it as investing the $100 in your mortgage
means that there is $309.42 you won't have to pay out in the
future. You could even argue that this is a return of 209%.

But what if you are several years into your mortgage. Well, even if
you are 10 years into your mortgage (and the average mortgage
only lasts about 7 years these days), you can still save $139.42 in
interest by paying an extra $100. Or if you are 20 years into your
mortgage you will still save $69.42 by paying an extra $100.

So what have you got to lose but your mortgage debt?

So why don't more people do this?

Probably because the conventional "wisdom" says that if you can
earn a better rate with an investment than what you are paying
on your mortgage you should invest instead. If you are paying 7%
on your mortgage and you can earn 11% in the stock market, it
seems a no-brainer that you should invest in the stock market.

There are two problems with this philosophy: first, the 11% stock
market figure that is widely quoted is an average over the past 30
years. Returns in the stock market have averaged on a yearly
basis both higher and lower than the 11% rate. How do you know
when you are investing in a year with negative returns? Unless
you are in the financial industry you are probably taking as big a
gamble as you would in Las Vegas playing the Roulette Wheel.

The other problem is that both inflation and taxes will eat away at
your 11% return. Taxes can eat up to 2% of it and inflation can
take another 3%, leaving you with only 6%, which is less than your
mortgage. And that's assuming you actually get the 11% return
that year. Also remember that years in which high returns in stocks
are enjoyed are also often accompanied by higher than normal
inflation rates.

But some people will not be persuaded and will insist on investing
in the stock market before paying off their mortgage and that is
understandable. We all want to build some sort of retirement nest
egg or have an emergency fund that is growing by more than the
dismal rates offered by bank savings accounts or money market
accounts.

But if paying down your mortgage makes sense at 7%, how much
more sense does paying down your higher interest rate debts. If
you have a credit card charging you as much as 24%, it makes way
more sense to pay this off before investing any money in the stock
market.

Some people would argue that it is good to invest always even if
you have debt. But that is contrary to the overall goal of increasing
your assets and wealth. For example, let's say you owe $1058 on
a 24% credit card and you have an extra $100 each month. You
decide to make your minimum payments while investing the rest
into the stock market.

If your stock market investment gives you a 12% rate of return you
will have about $996 at the end of the year ($100 - min pmt x 12
months + "interest"). But you will still owe $1079 (more than you
started with) on your credit card.

Viewed another way; you paid a total of $1200. Adding together
the negative credit card balance and the positive investment value
gives you have a net value of $-83.

Instead, if you use the full $100 to pay off your debt, you will be
debt free at the end of the year. You won't have an investment but
overall you will not still be negative. The next year, you could
invest the full $100 into the stock market. But if you still had your
debt, you could only invest $78.50 while still making your minimum
credit card payment ($100 - min pmt: $21.50 = $78.50).

Now if you take this scenario and play it out over 5, 10, 15 even 20
years you can see how paying your debts off now can save you
$1000s in interest and help you pay off your debts sooner. Once
your debts are paid off you can use ALL of the extra money to
invest.

Numerically it is much better to pay off your debts first. But since
your stockbroker makes his money off your investing what do you
think his advice will be?


David Berky is president of Simple Joe, Inc. makers of the popular Debt Eraser PC software, which helps people create a rapid debt reduction plan to get themselves out of debt much sooner and save $1000s in interest payments. Visit http://www.simplejoe.com for more information.