Debt Free

Don't have a broker? Don't want one? That's okay, because you don't really need one if you're are going around them by using a Direct Stock Plan (DSP). You could end up not only debt free, but with a substantial nest egg to boot. Over one thousand U.S. companies allow you to skip running your stock purchase through a broker. You can just buy the stock directly from the company, hence the word “Direct” in the plan description. How does the whole thing work? Well, it's like this.

First of all, just because you're bypassing the whole broker idea, ostensibly to avoid paying their trading commission or fee, you should understand that you may still have to pay a fee to participate in a company's DSP. It depends upon the specifics of their plan. In most cases the plans work differently than purchasing stocks through normal broker channels. When purchasing through a broker, you can enter an order anytime you'd like, and the purchase will be executed more or less right away, depending upon the market. You get the stock at the current market price. With most brokers, you can enter a limit order, so that you can have a bit of control over the price at which you buy or sell the stock. It is usually a bit different when going through a company direct stock plan.

In most cases such plans have specific days that you'll purchase the stock. There will be certain days set up that the plan allows purchases, and the transaction will be made automatically. Many plans allow you to purchase a certain dollar amount, rather than a specific number of shares. For example, you could make a $250 purchase. If the stock is selling for $20 a share, you'd buy 12.5 shares. In addition, the price you'll pay for the stock is typically made at the market average for the time interval when you make the purchase. So, if for example, the plan allows weekly purchases, you'd pay the weekly market average price for that stock.

DSPs are advantageous because it allows you to make small, regular investments in the company of a specific dollar amount. In addition you don't have to be current company shareholder in most cases in order to begin participation in the plan. Some companies have require you to make a specific initial investment in order to participate. In many cases that dollar amount is larger than the reinvestment amount you'll be able to contribute every month or other interval.

For example, General Electric requires you to purchase a minimum $250 to begin participating in their DSP. In addition, you'll have to pay a $7.50 fee to sign up for the plan. There is also a transaction fee of $3.00 for purchases made by check, or $1.00 for purchases made over the Internet by direct withdrawal from your checking account. After the initial $250 purchase, you can set up the plan to regularly invest anywhere from $10 to $10,000 in GE stock. Other companies have similar arrangements. Check with their websites for the specific plan details.

One note, don't confuse the direct purchase program with the directed share program, even though both are abbreviated using the letters DSP. A directed share plan is a plan that allows employees of a company to buy shares of a firm as part of public offering at the public offering price. This type of plan is fantastic because if you are trying to retire consumer debt, you can still invest at reasonable prices and regular intervals, so you can build a nest egg while you're trying to get debt free.