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Good and bad debt – know the difference!

Money makes the world go around! Today, money has never been cheaper – for example BNZ have announced their lowest two year fixed rate ever recently, of 4.39%. Awesome! But before you rush out to go borrow some, there is a trick. You need to understand the difference between good and bad debt.

Bad debt is money borrowed on depreciating assets. It is debt paid out of tax paid dollars. And the very worst bad debt is money borrowed to spend on consumption (I can feel some people’s hearts sink!).

Good debt is tax deductible debt used to buy appreciating assets and with historically low interest rates, you can borrow money to make money.

An example of bad debt we often see is property investors with personal debt on their homes and free hold rental properties. A little smart planning could save these people heaps on their taxes. With a little planning we can transform bad debt into good debt.

We often see people who could increase their monthly mortgage payments by as little as $20 a week and save thousands of dollars in interest over the term of the loan.

If you have debt and you need to discuss how you can save money or plan smarter, give WealthDesign a call.

A little time invested today could save you thousands of dollars in the long run.

 

John Barber
WealthDesign – a life well planned