Debt Management
Borrowing money is easier than ever, and it’s simple to take on debt. But not all debt is the same and understanding the difference between “good” and “bad” debt can help you make smarter financial decisions.
Understanding Good and Bad Debt
- Good debt – Borrowing to invest in wealth-building assets, like an investment property or shares, which may increase in value over time or generate income. Good debt may also be tax-deductible.
- Bad debt – Borrowing to purchase non-income producing items, like luxury goods or holidays, where interest is generally not tax-deductible.
Recognising the difference can help you manage your money more effectively and focus on building long-term financial security, however you need to ensure this fits with your overall plan and there are considerations regarding your personal circumstances that need to be made when making decisions on “good” or “bad” debt.
Borrowing to Invest
Some people consider borrowing to invest, also known as gearing. This strategy can potentially accelerate wealth creation by giving you access to a larger investment than you could fund yourself. However, while the potential for higher returns exists, the potential for losses also increases. Understanding the risks is crucial before taking this step.
Why Seek Professional Advice
Managing debt effectively is about more than just making repayments. It’s about knowing which debt to prioritise, how to manage cash flow, and how to make borrowing work for your long-term goals. Trying to navigate this alone can be risky, especially if you are considering borrowing to invest.
How We Can Help
Professional Money Management can provide guidance to help you make informed decisions about debt.
We can help you:
- Understand the difference between good and bad debt
- Develop a debt management plan tailored to your circumstances
- Prioritise repayments and manage cash flow effectively
- Assess whether borrowing to invest could be suitable for your financial goals (alongside your Mortgage Broker or lender)
- Integrate your debt strategy with your broader financial plan
- Understand managing debt and borrowing strategies
- Reviewing your financial position to identify potential tax efficiencies
*We provide advice on managing debt and borrowing strategies, but we do not provide advice on specific credit products, or applications for credit.
Professional Money Management can help you make the right decisions about your finances. Call us today on (03) 51 433 450.