Wealth creation and debt don’t seem like they go together. On the one hand, you want to earn more money and gain more assets. On the other side is the debt that’s tying up your money. Wealthy people have learned how to use debt to their advantage. While the goal is never to be in debt forever, strategically using it to build wealth does benefit them in the long run. Most hotels and rental properties are purchased using bank loans and investors. Some business start-ups use small business loans. It’s entirely possible to use debt to build wealth.
You do need to be careful in the process not to go overboard. Focusing on one thing at a time can help you keep yourself out of hot financial waters. If you try to do too much too soon, you might end up needing to file for bankruptcy which won’t help you out in the long run. Here are some ways you can leverage debt to build wealth.
Consolidate Your Risky Debts
Many consumers have multiple credit cards that have very high-interest rates. These debts are considered risky to a bank because they have no collateral backing them. Their only recourse is to get debt collectors after you or to report missed payments if you’ve gotten behind. Spending all your money on interest will not help you build wealth. By consolidating these risky debts into one loan, you will find yourself freeing up the money you already have. Debt consolidation loans often have lower interest rates than the cards which means that getting a new loan can help you with your wealth-building strategies.
Leverage Your Home
Your home is a great source of money to help you build wealth. Wealth isn’t simply about having money in the bank. It’s also about your assets and their value as well. Your home is an asset. And when there is a lot of equity in it, you can use this equity to help you build more wealth. Some people leverage the equity in their homes to buy additional properties that they can turn into rentals. When you use your home for this purpose, you’ll want to create the right business entity and file to change address online, so renters don’t come knocking at your private home.
They use home equity loans for down payments and to get everything they need in the new home to get started. Another option is to leverage a HELOC and an additional credit card to pay off your mortgage sooner. You can invest the money you save into other wealth-building opportunities.
Use Debt for Investing
Sometimes the return on investment (ROI) is much higher than the interest you pay on a credit card. Some people use credit to start investing because it helps them to build wealth much more quickly. They turn that debt into something more, cash out some of the earnings, use those to pay off the debt, and keep cycling that way. Eventually, the debt is paid off and you end up with more in your investments than you started with.
Don’t Fear Student Loans
Student loans are another debt that can help you with wealth creation. Some jobs require a degree or advanced degree for success. This means that you can use your student loans to improve your career choices, ultimately making you more money. This gives you opportunities to build wealth. People in the financial industry often have bachelor’s degrees or higher in addition to industry-specific licenses. This helps them manage portfolios, start businesses in accounting, and so much more. Student loans are simply a tool to help you reach your career and financial goals.
Use Debt To Build a Business
While the idea of using debt to build wealth sounds foreign, it’s actually been going on for a long time. Businesses use debt all the time to get started. Building some businesses is nearly impossible without some sort of small business loan or investors. You need to get permits, buildings, hire staff, and so much more. When you’re first getting started, you probably won’t have a lot of money of your own to do all this. So small business loans are the perfect solution. Use debt to build a business and you’ll be able to create a wealth-building machine. As your business grows, there will be more opportunities to earn more and invest more.