Debt can be a very powerful tool when used wisely. For example, you can use debt to buy a car or your first home. Debt can also be used to purchase investments with the potential to grow in value, known as gearing. A gearing strategy may help you to build an investment portfolio faster than you otherwise could have.
Two types of debt:
This is used to buy goods, services and assets that generally don’t generate an income; you can’t claim the loan interest as a tax deduction; you rely on your own resources to service the debt and it is wise to reduce this debt as quickly as possible.
Examples of inefficient debt are a home, personal loan to buy a car and credit card debt that is not repaid within the interest free period.
This is used to acquire assets that have the potential to grow in value and generate assessable income; the loan interest is tax deductible; the income generated by the asset can help to repay the debt; it’s more easily serviced and can be used to accelerate the creation of wealth.
Examples of efficient debt are an investment loan to buy shares or property; the asset has the potential to generate income, appreciate in value and the loan interest is tax deductible.
We specialise in strategies for reducing inefficient debt and using efficient debt to accumulate wealth.