Investors: Turn Your Debt Into Dollars With This 1 Trick

Canadian investors can eventually turn their debt into a lot of cash on hand.

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I know this title sounds a bit like clickbait. And it kind of is, but that doesn’t mean I’m lying when I say that there is a trick Canadian investors can do to eventually turn their debt into a way of creating a lot of cash on hand.

So, let’s get into this method, with a possible investment option I would choose on the TSX today.

First, budget

If you’ve been drowning in debt for a while now, then there is one thing you need to get rid on top of right away, and that’s creating a budget.

DON’T CLICK AWAY!

I swear there are now incredibly pain-free methods these days of creating a budget that works for you. Heck, ask one of those artificial intelligence bots to make one for you! There are budgeting tools to also keep you on track, even through your bank! That way, every time you spend even a dollar, you can find out how much you have left to spend on each item of your budget.

The key here is that you want to try the net-zero budgeting method. This is where you take your net income, and assign every single item on your monthly spend towards that net income. Whether it’s the bills you pay, your rent, your daily coffee, and, of course, your minimum debt payments. You want to put it all on the budget. Then, it’s time for step two.

Snowball

Now, unless you’re really living outside your means, once you’ve assigned every item on your budget to a dollar amount, you should still have a bit of your net income left over. That’s where the debt payments come in.

Again, we’re using the net-zero method. You’re going to assign every single dollar to an item in your budget until it’s at zero. So, the rest of your net income will then go towards the debt with the highest interest rate. This will likely be your credit card.

Even if you have a lot of debt on hand, you’ll be shocked to find how quickly that debt can be paid off by using this method. In fact, there have certainly been investors stating that they feel as if they got a raise as their debt falls lower and lower.

Even better? Once all your debts are paid, don’t stop this method! Instead, assign that cash to your investments! You’ll then go from debts falling lower to your savings climbing higher. When that happens, here’s an investment you could choose.

Create more cash

If you’re new to investing or just want an option that will always be strong, I would choose a balanced exchange-traded fund (ETF). This is like buying an entire portfolio with the click of a button. And then you have a professional team of managers looking after it for you!

If you want to turn your hard-earned cash into more cash, you’ll want to invest in an ETF with a strong dividend. A strong option to consider is iShares Diversified Monthly Income ETF (TSX:XTR). This monthly dividend payer invests not just in equities but also 47% in bonds and 50% in equities. You, therefore, also have a fixed income coming your way.

What’s more, it invests in other iShares ETFs. So, you have hundreds, if not thousands of investments just by investing in this one ETF. It’s a smart way to earn cash each month and only costs $10 per share as of writing. Shares have been rising steadily since October, so now is a great time to get a higher dividend than normal. But even so, it’s always a strong investment.

So, take your time, do the work, and you’ll not only have paid off your debt. You’ll have monthly income coming your way for all time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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