When it comes to growing your wealth and securing a brighter financial future, it’s likely you’ve heard about the importance of turning bad debt into good debt. The strategy known as debt recycling, or mortgage recycling, is one way you can successfully do this.
But what exactly is the difference between good and bad debt and how can debt recycling help you turn one into the other?
At My Wealth Solutions, we define good debt as anything that is tax-deductible or is owing on a nest egg asset that can be utilised to help you grow your long term wealth. Bad debt, on the other hand, is any that is not tax-deductible and/or is not owing on an asset designed to help you grow your wealth.
Common examples of bad debt include car loans, credit card debt and even the mortgage on your principal place of residence. Yes that’s right, while owning a home can have a number of financial benefits, your mortgage may actually be considered bad debt.
But it doesn’t have to stay that way.
That’s where debt recycling can help.
Debt recycling, at its most basic form, involves using the equity in an asset you currently owe bad debt on to purchase an investment asset that can be used to generate an income. You would then use the income generated from that asset to pay off your non-tax-deductible loan until this loan has been paid off and you only have the tax-deductible loan to pay.
Sound complicated? Don’t worry, this comprehensive guide to debt recycling is here to walk you through everything you need to know about debt recycling and how it can help you achieve financial success and security.
This guide will explain:
- What Debt Recycling Is
- The Benefits of Debt Recycling
- The Downsides of Debt Recycling
- How Debt Recycling Can Help You
Or if you’d like to find out more about debt recycling in relation to your particular financial circumstances and needs, you can get in touch with an expert investment advisor now.