Debt recycling is a wealth accumulation strategy which seeks to help an individual reduce non-tax deductible debt (i.e. your home debt) as quickly as possible, and at the same time build wealth, tax effectively over the longer term.
WHAT IS DEBT RECYCLING?
Many people wait until they have paid off their home before they start to invest for their retirement and future goals. Sadly, they have foregone many valuable years of been invested in the market and missed out on a developing an investment portfolio with growing fully franked dividends while they work hard to pay down their home loan.
Debt Recycling is a wealth accumulation strategy. Debt recycling is replacing your home loan debt (otherwise known as non-deducible debt or we refer to as BAD debt) with investment loan debt (known as deductible debt or GOOD debt).
An example of BAD debt is the current mortgage on your home and no one helps you pay off your home loan – except for you. An investment loan is known as GOOD debt, and is typically tax deductible. We can, from year to year, transfer the BAD debt into GOOD debt and simultaneously build an investment portfolio over time to provide another source of income at retirement
HOW DOES IT WORK?
It is important the home loan is structured correctly in the beginning so we can avoid excess bank fees and operate the whole process smoothly. In year one, alongside our home loan we open a small Line of Credit (“LoC”), draw down those available funds and invest into a portfolio of income producing assets.
At the end of year one, two actions occur with transferring investment income back to your mortgage and reading your investment portfolio. Each year we are paying more into our home loan to reduce the BAD debt. Hence the term “Debt Recycling”. Each year we repeat this process and it’s all monitored closely by us, your adviser.get in touch
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