People are always looking to make a return on investment improvement. Don’t you love hearing about a person’s raving success in the stock market? (Yet they fail to mention all of the losing stocks they also picked). If you’ve ever been bored enough to be watching late-night television, you most likely saw an infomercial about how you can make it big “flipping” properties, or leveraging (using debt) yourself to the hilt to make huge returns on your investment.

Well, I’m here to say that I also have come up with a way to make a guaranteed 18% return on your investment! Read that again if you’d like. I guarantee that you can make an 18% return on your investment. And it won’t cost you a dime. You won’t even have to buy my extremely expensive tape set for $49.95 (normally $149.95 - but if you call within the next twenty minutes you save $100!). That’s right. I’m going to give this information to you absolutely free. Here we go.

Imagine you’re an average American. That means you carry about $8,000 on your credit card. If you’re still average, then you also pay an interest rate of about 18%. That means in one year you pay $1,440 to Visa, Discover, or whoever else might be your taskmaster.

Suppose your wealthy grandmother gives you $8,000 tax free. What should you do? What would most people do? Let’s take a look at two different alternatives. Suppose you have the opportunity to invest that $8,000 into a mutual fund consisting of the stocks that make up the S&P 500. Historically (cautiously including the bubble…) you might get 11%. Let’s make the gross assumption that this fund is expected to also return 11% this year. So you take the plunge and invest the $8,000. In one year you’ll have made $880.

Because you invested your $8,000 windfall into a mutual fund instead of paying off your credit cards you effectively made a -7% return. You always need to evaluate choices with money based on the next best alternative. And in this case, you lost $560.

You must also note that the 11% return offered by the mutual fund is not a guaranteed return on investment. Naturally, there is a chance that the mutual fund could lose money during the year, or return some paltry amount. These risks are not present when you use the windfall to pay off the $8,000 credit card balance. Let me make that point again. To avoid an interest payment of 18% by zeroing the debt is the same as getting an 18% return on money you invest.

When would paying off your 18% credit card balance not be financially prudent? There is one scenario: If you can find a risk-free, guaranteed investment for your $8,000 that would yield a return on investment greater than 18% per year then it would be wise for you to invest your money in that vehicle and continue paying your taskmaster. The odds of finding such an investment? Virtually zero.

The only guaranteed return on investment I know of is to pay your debts off early or settle for federal rates. If your mortgage rate is 7% and you decide to pay the principal down then you are making a guaranteed return on investment of 7%. If your credit card balance is subject to an 18% balance and you pay it off then you have made a guaranteed 18% return.

I think I’ve beat that dead horse enough.

If you have enough money in your checking account to cover one month’s expenses, and you are budgeting your money effectively from month to month, then you need to be capitalizing on the returns you can make by paying your consumer debts (automobiles, boats, 4-wheelers, credit cards) as soon as possible. Once you have these debts paid off it’s time to finish off your emergency fund with another 2-5 months’ expenses. Put the emergency fund money in a very liquid, stable place. (I highly recommend ING DIRECT). After you’ve completed that step, begin working on having interest work for you in the other direction. Begin investing for the long run. A rich man has interest working for him, not against him.