Making debt work for you
Making debt work for you is possible and achievable. If going down into the rabbit hole of debt finds you between the devil and the deep blue sea, you might as well learn how to swim.
The word debt has a negative connotation attached to it. Being in debt has the words scarcity, shortfall, distress, and hassle attached to it. Increasing personal wealth is of great significance to everyone and debt is considered to be a major roadblock in this.
However, the entire potential of debt is still largely unrealized. If exercised prudently, this option can improve the financial health of a person. Debt can, as a matter of fact, be used as a tool to not only raise capital but also to retain or increase it in the long run, thereby making debt work for you.
Using debt to your advantage
There exists a myriad of reasons why people incur debt. While some people take a loan to finance their degree, others do the same to buy a house or property.
The most dreaded part of a debt is not the repayment of the principal amount, but the payment of the peeving interest rates. Hence, the question that can be considered here is what could be done to assuage the affliction that comes with the anxiety of absolving one's liability?
Before answering that, let’s look at why is debt construed to be a noxious entity and how the perception should undergo a change.
- Firstly, a vast majority of people live from paycheck to paycheck, and debt, combined with other expenses, takes away a large part of their earnings, leaving little to no disposable income in their hands.
- And secondly, a lot of doubt and apprehensiveness surrounds the term debt.
For the former, if people inculcate a healthy habit of saving and not be improvident, it can go a long way in not only reassuring them with their financial well being but also they can channelize their savings in a manner which provides them more returns than the cost of debt, hence taking away their insecurity and even producing profits in many cases, which makes your debt work for you.
And as far as the latter is concerned, there is no need to apprehend taking on any debt if you make sure to not procrastinate the payments.
Now, to answer the question, taking a debt that is taken to increase the value of something, be it your house, car, or education is more of an asset than a liability.
Ever wondered what drove billionaires like Elon Musk, Beyoncé, or Mark Zuckerberg to use a mortgage in order to finance their activities? How do mega-rich people like them, with a huge amount of cash flow, make their debts work for them.
Let’s understand this by an example:
Suppose you wish to buy a beautiful lake house, and fortunately, you have the money to finance it, there are two ways in which you can proceed with the transaction:
- You can straight up buy the house with your savings
- You can take a home loan while choosing your plan accordingly, and thereby invest your money in a productive manner that gives you returns greater than what you’re paying as interest. This will not only provide you an opportunity to reside in the house but also to improve your financial well-being and make the debt work for you.
I’m sure the second option sounds more lucrative and reasonable and rightfully so, and in this manner, the property’s equity also can be increased. This is the reason why people, irrespective of their financial standing, tend to opt for the latter.
Moreover, certain loans have tax benefits too as compared to paying with your own money. Hence, rather than using your money, if you are successful in borrowing funds at a low interest rate and invest your money wisely in a financial instrument that yields a greater interest rate, it would be a win-win situation.
These are essentially your investments in the future, where the financial benefit can be greater than the cost of debt incurred. This is how you can turn your liability into your asset and make your debt work for you.
Nevertheless, whichever path you choose, your personal level of risk acceptance and debt management will determine the ultimate outcome. In order to use your debt to your advantage, be aware of the financial risk, get involved in proper budgeting, and act accordingly.
Looking to start a freelance career in Dubai, UAE? Freedom2Work is your one-stop-shop for all things freelancing. Get in touch with us to apply for a freelance license and a residence visa.
Address: 213, Vakson Commercial Building, Umm Al Sheif, Sheikh Zayed Road, Dubai, UAE
Phone number: 800-FREEDOM (373 3366)
Frequently asked questions
1. How do you use debt to your advantage?
- Debt can be strategically used to your advantage by investing it the right way. One of the best ways is to do so in real estate and utilize your wealth in other areas which will give more returns.
2. Is it good to have no debt?
- Having no debt is certainly good and a big relief as well. However, having debt and strategically channelizing your wealth elsewhere can prove to be advantageous as well.
3. What is good debt?
- Good debts are those which eventually help you build wealth. Whether that is by way of investing the money in education or business, or by other ways, you can utilize your own money in investments yielding a higher return.
4. Can debt make you rich?
- If you have a certain amount of good debt and are using that wisely, so as to invest your money in profitable ventures and getting a higher return than the amount you are paying, then that can be a lucrative and prudent investment.
5. How can you profit from debt?
- Apart from providing tax benefits, debt can be utilized by borrowing to invest. If the investments appreciate in value, then the overall return will be higher; however, this is contingent on utilizing this approach wisely because there is always a risk that the investment might decrease in value.