We often associate the word recycling with anything sustainable or helpful. But when it comes to debt recycling, people have raised eyebrows. If executed well, debt recycling can go a long way in improving your financial well-being.
Aussies who own properties or a mortgage share three common goals, to pay off their loans sooner, have their debt tax-deductible and build future wealth by investing in other assets.
You can accomplish all of those with debt recycling. But it’s not a walk in the park.
Debt Recycling, In a Nutshell
By definition, debt recycling takes any non-deductible debt from your account and recycles it into one that is tax-deductible.
You can also say that debt recycling turns your mortgage debt into an investment debt. Then you can use all the earnings you get from your investments to meet your loan repayments.
Implementing proper debt recycling can help you repay your mortgage faster and even generate more income from investments and asset appreciation over the long run.
Who Can Avail Debt Recycling
Remember that debt recycling requires a higher-level financial strategy, and not everyone can avail or benefit from it.
Debt recycling is mainly for individuals who:
- Doesn’t mind investing for long-term than looking for short-term results
- Have a significant marginal tax rate since it raises your perks for tax-deductibility
- Can take significantly higher risks
- Have a stable source of income that isn’t dependent on investments
Benefits of Debt Recycling
Implementing debt recycling properly provides you with a plethora of benefits, including:
- The capacity to invest instantly even with no current funds to kick-off
- Bridge any gaps between your retirement goals and superannuation savings
- Repay your mortgage sooner and unload your debt burden faster
The Cons of Debt Recycling
Understanding how debt recycling works may reduce the risks, but it never completely eliminates them.
Here are two of the most crucial risks to consider when venturing into debt recycling:
- A market downturn may significantly impact your portfolio and compound losses, leading to more debt than when you started.
- You could risk losing your property if you use its equity as loan security.
Is Debt Recycling For You?
We’ll reiterate that debt recycling isn’t for everyone. That’s why it’s best to evaluate your financial strength and personal circumstances with a reliable partner at Plan A Mortgage.
If you want to discover whether you qualify for debt recycling, feel free to speak with us today, and we’ll be happy to take you through financing options that work for you.
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