If used correctly, the stock market can make you feel like you’ve got an ATM that has unlimited money in it, but it’s often hard to jump in when you’re carrying around the burden of debt.
That’s why I’m going to show you how you can make the stock market pay off that debt for you.
This trick can take a 10-year loan, pay it off in 5 years, AND leave you with an extra $6,106 to do with as you please…
It also works with 20- and 30-year loans. In fact, you can pay off your car loan, your mortgage, and any personal loans with it if you know what you’re doing.
That’s where I come in.
I’ve been using the stock market as a personal, limitless ATM for decades, but I carried the same type of debt with me as you before I got started.
I simply remedied that by forcing the market to pay that debt off and leave me with a nice chunk of change to continue to invest with.
Here’s exactly how you do it:
First, you need to analyze a couple numbers.
You’ll need to know how much your debt is, what interest rate you’re paying, and how long you’ve got to pay it.
For the purpose of explaining this to you, I’m going to show you how you’d erase a $20,000, 10-year debt with an interest rate of 7%, all by milking the stock market.
The first thing I’d do is find a dividend stock with a high yield.
My research shows me that the Oil and Gas sector has a 9.6% average annual yield.
That means if you find a stock with this amount of yield, you’ll be paid that percentage each year on the value of shares you own.
Looking in the Oil and Gas sector, I’m going to use the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
So, now that I have my stock that’ll pay a dividend of around 9.6%, if in line with the average, I’m going to show you how XOP will pay off your 10-year loan in 5 years, while putting that $6,106 in your pocket.
The loan I’ve used ($20,000, 10-year loan with interest of 7%) would amount to a grand total payoff of $39,000 after those 10 years.
Most people would have a heart attack after seeing that final figure, but that’s what compounding interest does to your loan.
So, my game plan here is simple. I need the value of the stake I buy in XOP to reach the value of my loan before the 6th year.
After the 5th year of the loan, you’d owe around $28,051.
After crunching the numbers, you’d want to buy $5,000 worth of XOP in order to pay your loan off in those 5 years.
This $5,000 is miniscule compared to the $39,000 you would ultimately owe, AND it’ll pay for itself with the extra $6,106 it’ll provide you with in that 5th year.
After obtaining your $5,000 worth of XOP shares, you’d set up a DRIP plan. This DRIP plan is just a fancy way of saying your dividends will be reinvested into your XOP holdings.
But that DRIP plan isn’t going to pay off your debt alone.
We also need to consider the growth of XOP.
One of the last times XOP was around the price it’s currently sitting at, it gained 170% in 5 years—or 34% per year.
Great! We have our 9.6% dividend being reinvested AND the stock could grow at a rate of more than 34% per year.
Here’s how your 5-year investment would break down:
Year 1: $5k + 9.6% + 34% = $7,343
Year 2: $7,343 + 9.6% + 34% = $10,784
Year 3: $10,784 + 9.6% + 34% = $15,837
Year 4: $15,837 + 9.6% + 34% = $23,258
Year 5: $23,258 + 9.6% + 34% = $34,157
In year 5 of your loan, you’d owe a grand total of $28,051—you’re currently sitting on $34,147 worth of XOP shares you initially paid $5,000 for…
This technique would pay off the remainder of your loan in half the allocated time AND put an extra $6,106 in your pocket.
What you do with this $6,106 is up to you, but I’d suggest looking at any other loans you need to pay off or reinvesting it into another high dividend stock.
Your options are endless when it comes to exactly which stock you use to make the stock market pay off your debt, but keep two things in mind: it needs to have a high-dividend yield (higher than your interest rate) and it needs to be performing well (look at the past 5 years, then break it down yearly).
You’ll have that nasty debt paid off before you have a second to sweat about it.
