It's astounding the number of Financial Advisors don't understand or realize how to use their customers' home value to create all the more long-term financial wealth. Despite the fact that each Financial Advisors mission to help their customers create long haul financial wealth.
What's the difference between good and bad debt?
Good Debt is the type that allows you to accumulate assets that will increase in value; the loan interest is often tax deductible and you can use the income derived from the asset to repay the debt.
- Property
- Shares
- Investing in managed funds
Bad Debt is the type that buys goods, services or assets that have no potential to generate any income and/or depreciates in value. The loan interest is non-tax deductible and there is no income from the asset to pay back the debt.
- Credit card debt – if not repaid within the interest-free period
- Personal loans to buy cars
- Most family home loans
How can debt be in your favor?
- Debt Consolidation - Increase your mortgage and use the extra funds to pay off other, inefficient bad debt like credit card balances and personal loans.
- Better Cash-Flow Management - The main idea is to reduce interest payments – this can be done by increasing frequency of payment on a mortgage, increasing the amount paid, paying your entire salary into an offset account or by using an interest-free period on a credit card to pay for daily expenses (freeing up other funds for paying off your home loan) without paying any interest.
- Debt Recycling - is where, as you pay off your home loan, you redraw the equity you have built up to invest in shares or other property; again, the bad debt becomes good debt that can earn you an income and can be used to pay back the loan, as well as providing tax breaks.
Header Photo by Karolina Grabowska from Pexels
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