Do you have a home loan? If so, you may be able to save money and build wealth by using a strategy called debt recycling. Debt recycling is a tax-effective way to use your home loan to invest in other assets, such as shares or property.

Here’s how it works:

1. You make a regular repayment on your home loan.
2. You then use the redraw facility on your home loan to invest in another asset.
3. The interest you pay on the loan used to invest is tax-deductible.

For example, let’s say you have a home loan with an interest rate of 4%. You make an extra $2,000 per month payment on your home loan. After a year, you’ve built up $24,000 in equity. You use this equity to borrow $24,000 to invest in shares/ property. You claim the interest you pay on your investment loan as a tax deduction.

In this example, you’ve saved $$$ on your taxes. You’ve also invested in an asset that has the potential to grow in value over time.

Debt recycling is a great way to save money on your taxes and reach your financial goals faster. However, it’s important to speak to a financial advisor to make sure it’s the right strategy for you.

Benefits of Debt Recycling

There are many benefits to debt recycling, including:

• Tax savings: The interest you pay on the loan used to invest is tax-deductible. This can save you a significant amount of money each year.
• Increased investment returns: The money you invest can grow faster due to the tax savings.
• Reduced debt burden: Over time, you can pay off your home loan faster by using the debt recycling strategy.

Drawbacks of Debt Recycling

There are a few drawbacks to debt recycling, including:

• Risk: Investing carries some degree of risk. You could lose money on your investments.
• Complexity: Debt recycling can be complex to set up and manage. It is important to work with a financial advisor who is experienced in debt recycling.
• Costs: There may be some costs associated with debt recycling, such as account fees and brokerage fees.

Is Debt Recycling Right for You?

Debt recycling is not right for everyone. It is important to consider your individual circumstances before deciding if debt recycling is a good option for you. If you are considering debt recycling, it is important to work with a financial advisor who can help you assess your individual situation and determine if debt recycling is right for you.

Conclusion

Debt recycling is a smart way to save money and build wealth. If you have a home loan and are looking for ways to save money and grow your wealth, debt recycling is a strategy that you should consider.