The Best Investment You Can Make

Stocks go up and down -- mostly down, lately. Commodities have made a mint for investors in recent months, but with oil down $9 in the past two days, they're far from a sure thing.

But there's one investment you can make that's sure to pay dividends, both now and for the rest of your life. If you're in debt, you owe it to yourself to get it paid down as soon as you can.

Good for business, good for you
Wall Street has learned the hard way what being overleveraged can do to your financial condition. Institutional giants like Citigroup (NYSE: C  ) and Morgan Stanley (NYSE: MS  ) have suffered multibillion-dollar losses trying to recover from the subprime mess. Even smaller regional banks, such as Fifth Third (Nasdaq: FITB  ) and SunTrust Banks (NYSE: STI  ) , are hurting to raise capital.

Similarly, lots of families have found their budgets increasingly stretched. Higher food and fuel prices mean less disposable income for other needs. And while stimulus payments have given many people a temporary reprieve, $600 won't be enough to deal with high costs for very long.

As a result, debt levels are heading higher. Just yesterday, the Federal Reserve announced that consumer credit rose to $2.57 trillion -- and that doesn't include the mass of mortgage debt that U.S. households are struggling with.

Get your house in order
No matter what condition the economy's in, it always pays to keep your long-term goals in mind. Whether you're saving for retirement, a down payment to buy a house, or some other big-ticket purchase, stocks are a good place to put your money for strong returns over the long haul.

But before you can focus solely on the far future, you want to make sure you have your finances in good shape right now. As you'd expect, people have responded to extremely low interest rates on mortgages and other loans by ramping up debt levels. If those rates go up in the coming years -- and they really have nowhere to go but up -- then you may find yourself overextended and unable to cover your current debt load or find additional financing.

The investment that keeps paying you
By lowering your debt load, you can make sure your budget won't get buried by higher interest rates. Just as companies like doughnut maven Krispy Kreme (NYSE: KKD  ) that cut their long-term debt are able to use more of their profits to grow their businesses, freeing yourself from personal debt lets you use more of your hard-earned money for the things you need and want.

Moreover, once you've eliminated your bad debt entirely, you're in a much better position to handle any unexpected things that life throws your way. By emulating companies like Research In Motion (Nasdaq: RIMM  ) and Electronic Arts (Nasdaq: ERTS  ) , which have become cash cows with no debt, you'll be able to spend every dollar you earn to improve your lifestyle.

Deleverage your life
There are few things that make you feel more secure than paying down debt. Especially in times like these, getting your debt under control is the best investment you can make -- and is a great first step toward reaching all of your financial goals.

For more on the basics of investing, read about:

Electronic Arts is a Motley Fool Stock Advisor recommendation. Once you have your financial house in order, see what stocks Fool co-founders David and Tom Gardner are recommending as their best bets. It's free for your viewing pleasure with a 30-day trial.

Fool contributor Dan Caplinger is an anti-debt fanatic. He doesn't own shares of the companies mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. We've invested a lot in the Fool's disclosure policy.


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  • Report this Comment On July 09, 2008, at 4:34 PM, bankanalyst42 wrote:

    While I agree with the reduction in debt theme of your article, you are incorrect in your assertion that Suntrust Bank is currently "hurting " to raise capital. Fifth Third has cut its dividend and sold new stock because of being undercapitalized. However, Suntrust raised its dividend 5% this year and has stated in a press release recently that the dividend is safe and writedowns are manageable and that they do not anticipate ant dilutive capital raising. While I have never been impressed with the Fools analysis, its just not that hard to get the facts straight. If I am wrong just point out the facts (not shortselling BS.)

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